U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) OR 12(g) of The Securities Exchange Act of 1934
ADVANT-E CORPORATION
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
DELAWARE 88-0339012
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
</TABLE>
1619 Mardon Dr., Dayton, Ohio 45432
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (937) 429-4288
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
THIS AMENDMENT IS FILED TO UPDATE FINANCIAL STATEMENTS
AND TO REFLECT THE COMPANY'S NAME CHANGE FROM
TWILIGHT PRODUCTIONS LTD. TO ADVANT-E CORPORATION
TABLE OF CONTENTS
Forward Looking Statements
PART I
Item 1. Description of Business
Item 2. Management Discussion and Analysis or Plan of Operation
Item 3. Description of Properties
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors and Executive Officers
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market Price of and Dividends on the Common Equity and Related
Stockholder Matters
Item 2. Legal Proceedings
Item 3. Changes In and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
PART F/S
Item 1. Financial Statements
PART III
Index to Exhibits
SIGNATURES
FORWARD LOOKING STATEMENTS
This Form 10-SB contains forward-looking statements, including statements
regarding the expectations of future operations. For this purpose, any
statements contained in this Form 10-SB that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, many of which are not within the Company's
control. These factors include, but are not limited to, economic conditions
generally and in the industries in which the Company may participate,
competition within chosen industry, including competition from much larger
competitors, technological advances, and the failure to successfully develop
business relationships. In light of these risks and uncertainties, you are
cautioned not to place undue reliance on these forward looking statements.
The Company acknowledges that the safe harbor contained in the Litigation
Reform Act of 1995 is not applicable to the disclosure in this Form 10-SB.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS HISTORY
Twilight Products, LTD., ("Twilight") was incorporated in the State of
Delaware on March 9, 1994. Twilight was engaged in the business of producing
high-quality, low budget, feature-length motion pictures. Since Twilight's
inception, two films have been produced but not sold as of May 1, 2000.
During fiscal year 1999, Twilight wrote down the value of both films to zero.
On April 10, 2000, Twilight acquired all of the issued and outstanding shares
of EDICT Systems, Inc. ("Edict" or the "Company"), a company incorporated in
September of 1994 and organized under the laws of the state of Ohio pursuant
to the terms of an Agreement and Plan of Merger dated April 10, 2000 (the
"Merger Agreement") by and among the Company, Twilight and Twilight
Acquisition Sub, Inc., an Ohio corporation and a wholly-owned subsidiary of
Twilight ("Sub"). In accordance with the terms of the Merger Agreement, Sub
was merged into Edict (the "Merger") and the Shareholders of Edict were issued
4,359,000 shares of Twilight's common stock, par value $.001 per share
("Common Stock"). As a result of the Merger, Edict became a wholly-owned
subsidiary of Twilight. In addition, the directors and officers of Edict
became the directors and officers of Twilight.
Immediately following the Merger, the Shareholders of Edict owned
approximately 81% of the issued and outstanding Common Stock of Twilight.
Immediately thereafter, the two films that were developed by Twilight were
transferred to Chaverim Productions, Ltd., a Delaware corporation, an entity
owned by the former officers and directors of Twilight, in exchange for
Twilight's release from any and all obligations and liabilities arising from
the production of the films, leaving the sole business of Twilight consisting
of the business of Edict.
Also on April 10, 2000, Twilight entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Halter Financial Group, Inc., a Texas
corporation ("HFG") and Art Howard Beroff ("Beroff"), a former director and
officer of Twilight prior to the Merger. This Stock Purchase Agreement was a
requirement made by Edict in order to consummate the Merger. Under the
terms of the Stock Purchase Agreement, HFG and Beroff, or their designees, are
obligated to purchase 141,500 shares of Common Stock each for a purchase price
of $150,000 within 90 days of the effective date of the Merger. The date of
purchase has been delayed by agreement of the parties and shall occur within 5
days after the filing of this Form 10SB. The Stock Purchase Agreement
obligates Twilight to issue 283,000 shares of Common Stock for an aggregate
consideration of $300,000 (approximately $1.06 per share). At the time of
execution of the Stock Purchase Agreement, shares of Common Stock were trading
at approximately $1.06 per share. This offering was made pursuant to Section
4(2) of the Securities Act of 1933.
OVERVIEW/BACKGROUND
The Company is a provider of business-to-business ("B2B") electronic commerce
("e-commerce") products and services, offering comprehensive, standards-based
and proprietary solutions for businesses of all sizes. The Company develops,
markets, and supports B2B e-commerce software products and provides Internet-
based communication and e-commerce data processing services that help
businesses process transactions required in the electronic procurement of
goods and services and other B2B relationships.
The Company's software products enable businesses to engage in e-commerce with
one another by allowing companies to fully integrate e-commerce data into
their business infrastructure and operations as well as allowing smaller
companies the ability to manually process electronic transactions.
As of December 31, 1999, the Company had over 800 companies using its
FORMULA_ONE EDI translation software which allows companies to transmit,
receive, manage, and process Electronic Data Interchange ("EDI") transactions
for integration into legacy systems or for stand-alone processing via printed
output and entry screens for data generation.
In addition, the Company has over 200 companies using its bar code label
modules ("BCLM") to produce shipping container labels. The BCLM modules
integrate with the Company's FORMULA_ONE software and utilize data received
from business partners for the rapid creation of shipping labels.
In 1999, the Company developed its EnterpriseEC service as an alternative to
EDI software and to private network services that are currently provided by
traditional value added networks ("VANs") offering their services primarily
using dedicated telecommunications links.
EnterpriseEC transmits and receives electronic documents, such as purchase
orders, invoices, promotional information, and other documents over the
Internet. EnterpriseEC also allows customers to transmit and receive data
directly using other communications protocols. In addition, EnterpriseEC
communicates with traditional VANs via an interconnect with AT&T Easylink
Services which allows EnterpriseEC to support its customers even if their
trading partner uses a traditional VAN.
EnterpriseEC allows companies to utilize their current EDI software (including
FORMULA_ONE) to process electronic documents, but uses the Internet (via
EnterpriseEC) for communication of the electronic documents to reduce the
costs associated with traditional VANs.
EnterpriseEC also provides value-added services such as conversion of data
from one format to another. This is known as server-side data translation.
EnterpriseEC also allows companies to utilize a web-based, generic portal
("www.EZEC.com" and "www.EasyEC.com") to access documents stored on
EnterpriseEC via commonly available web browsers for processing which
eliminates the need for EDI software in many cases.
In addition to generic access and processing of documents via the EnterpriseEC
generic portal, the Company creates vertical industry portals ("Vortals")
which target specific industries and allows for the addition of value added
services to these vertical communities.
In October, 1999, the Company activated its EnterpriseEC Internet-based value-
added network, utilizing a direct connect method (not Internet or VAN
interconnection) with The Kroger Company, a major grocery industry retailer.
Also in October, 1999, the Company activated www.GroceryEC.com, its first
Vortal to allow vendors and brokers of Kroger to receive, process, create, and
transmit electronic documents to and from Kroger.
As of June, 2000, the Company added support for eight additional grocery
retailers, two connecting directly with EnterpriseEC and seven communicating
with EnterpriseEC via traditional VANs. Also as of June, 2000, development
was underway to add support for nine additional grocery retailers with the
goal of supporting 50 grocery industry retailers' e-commerce capabilities by
December, 2000.
As of June, 2000, there were approximately 450 vendors/brokers in production
on www.GroceryEC.com, to support the e-commerce initiatives of the grocery
retailers which were supported on EnterpriseEC.
The Company has also reserved additional Vortal Internet domains and intends
to add additional domains when necessary. Currently reserved domains are:
RetailEC.com
HealthcareEC.com
PetroleumEC.com
MfgEC.com
HighTechEC.com
AutomotiveEC.com
LogisticsEC.com
DrugStoreEC.com
The Company markets EnterpriseEC and Vortals utilizing its "Hub and Spoke"
marketing program whereby large "hub" companies get reduced prices or free
access to EnterpriseEC while their trading partners, "spokes", pay transaction
fees to access to the system.
PRODUCT BREAKDOWN - SOFTWARE AND SERVICES
FORMULA_ONE - PC-based software for transmitting, receiving, administrating,
and processing EDI documents. FORMULA_ONE communicates with all traditional
VANs as well as EnterpriseEC via secure File Transfer Protocol ("FTP").
FORMULA_ONE supports both integration with customers current legacy systems as
well as stand-alone processing via printed output and entry screens for
creating electronic documents.
BCLM - Bar Code Label Modules provide an add-on to FORMULA_ONE for the
creation of bar coded shipping container labels.
EnterpriseEC - An Internet-based e-commerce network providing similar
functionality as traditional VANs, but at reduced prices due to using the
Internet as a communications infrastructure. EnterpriseEC also includes
network level translation of data from one format to another (standards based
data to proprietary, etc.).
EZEC.com and EasyEC.com - A generic, web-based document processing system
similar to the Vortals but not focused on any vertical industry.
Vertical Industry Portals - Vortals - Web sites designed to allow participants
in a vertical industry the ability to process and create electronic documents
on EnterpriseEC via a web browser. Additional industry-specific value added
features can be added to a Vortal.
THE MARKET
Business-to-business e-commerce involves the automation of business processes
and transactions through the use of computers and telecommunications to
exchange and electronically process commercial information and transactions
between businesses. In the 1980's, the predominant technology for B2B e-
commerce was Electronic Data Interchange ("EDI") which involves the use of
industry standards to conduct the exchange of business documents
electronically. The transactions were communicated between businesses over
private communication networks, known as VANs, which provided security,
administration of trading partnerships, auditing, and delivery of electronic
transactions. In the 1990's, the Internet, because of its wider acceptance
among businesses, became a viable option for conducting e-commerce instead of
using private networks. This development greatly increased the opportunity or
more businesses to participate in e-commerce due primarily to a perception of
lower cost associated with using the Internet.
The advantages of B2B e-commerce typically include elimination of redundant
data entry, a reduction in administration associated with processing paper
documents, a reduction in lead-time necessary to process documents, the
ability to reduce inventory based on "just in time" philosophies, and
increased data accuracy. The use of data standards for e-commerce is
important for companies with disparate computer systems to communicate
business documents electronically in an effective manner.
As larger companies seek to garner the maximum return on their ability to do
e-commerce, many of their smaller trading partners will require applications
to manually process and generate electronic documents externally from their
business systems until such a time that the volume of e-commerce transactions
warrant the necessary investment to integrate the e-commerce data into their
legacy systems. These smaller companies utilize PC-based software or web-
based "portals" for processing and creating e-commerce documents to support
their business partners.
STRATEGY
The Company plans to become a leading provider of B2B e-commerce software and
solutions by providing software products and services to the B2B marketplace
for the broadest possible distribution. By focusing on vertical markets
within the B2B marketplace along with providing horizontal market solutions,
the Company intends to provide solutions to a broad potential customer base.
There are two major components to conducting B2B e-commerce - communications
and data processing.
In support of the first major component - communications, the Company has
developed its EnterpriseEC product which is an Internet-based e-commerce
network providing similar functionality as traditional VANs, but at reduced
prices due to using the Internet as a communications infrastructure instead of
creating and maintaining a private network. EnterpriseEC can be used by
companies that currently have e-commerce software in place, but are using
traditional VANs by using secure file transfer protocol ("FTP") or by using a
free secure FTP software product provided by the Company.
In addition, EnterpriseEC communicates with traditional VANs via an
interconnect with AT&T Easylink Services which allows EnterpriseEC to support
its customers even if their trading partner uses a traditional VAN.
EnterpriseEC also allows customers to transmit and receive data directly to
the Company's data center using other communications protocols, such as
asynchronous or bisynchronous protocols, bypassing the Internet altogether.
This is provided for those customers that have concerns about the Internet
being used for B2B e-commerce due to security or availability concerns.
In support of the second major component of B2B e-commerce - data processing,
the Company has developed both PC-based software and web-based solutions. The
processing of e-commerce data falls into two general categories - those that
are integrating the e-commerce data into their in-house legacy business
systems and those that process and generate electronic documents manually (not
integrated).
For companies that want to integrate e-commerce data into their in-house
legacy business systems, the Company offers its FORMULA_ONE EDI translation
software. This software provides connectivity to most private VANs as well as
EnterpriseEC. Once data is received into FORMULA_ONE, it can be translated
into any customer requested format using reformat programs that are custom
developed by the Company with the reformatted data being exported to in-house
legacy systems for integration.
In addition to using FORMULA_ONE for integration, EnterpriseEC has the ability
to reformat data prior to transmission to the customer for integration
purposes using custom developed applications, which are hosted on the
EnterpriseEC computer systems.
For companies that want a stand-alone solution which produces readable
documents of incoming e-commerce data and generates outgoing e-commerce
documents by using data entry screens, the Company has several solutions. In
addition to assisting companies with integration, FORMULA_ONE also has stand-
alone capabilities whereby incoming data is printed in a readable format and
data entry screens are available for generating outgoing documents. In many
cases, the outgoing documents are created from incoming data using a "document
turnaround" feature within FORMULA_ONE. This feature allows a customer to
load an incoming document (such as a purchase order) into a data entry screen
for faster generation of an outgoing document (such as an invoice). This
"turnaround" feature can be used whenever an outgoing document contains much
of the information contained in an associated incoming document.
The Company has also produced a web-based solution for processing e-commerce
data in a stand-alone environment. By generating hypertext markup language
("HTML") based readable reports of incoming electronic documents, and
utilizing Java applets and/or HTML based entry screens for creating outgoing
electronic documents, the Company has created an alternative to traditional
e-commerce software and network services. The Company provides these web-based
solutions via a generic portal on EnterpriseEC or via Vortals that target
specific industry segments.
The Company intends to utilize its many years of experience in the e-commerce
industry to market EnterpriseEC horizontally to companies currently doing e-
commerce as well as companies who will be conducting e-commerce in the future.
Because EnterpriseEC is not industry specific and utilizes both standards-
based e-commerce data formats as well as proprietary formats, any company
doing e-commerce is a potential customer of EnterpriseEC.
The Company intends to leverage its current FORMULA_ONE customer base to
increase connectivity opportunities with EnterpriseEC as most of the
FORMULA_ONE customers are currently using commercial VANs. The Company has
developed a secure FTP software program that integrates with FORMULA_ONE
providing connectivity to its EnterpriseEC service. Due to the cost savings
associated with Enterprise versus traditional VANs, the Company expects many
of its FORMULA_ONE customers to switch.
The Company also intends to provide web-based solutions for stand-alone B2B
customers via its generic portal (EZEC.com and EasyEC.com) on EnterpriseEC as
well as its Vortals. The Company plans on leveraging the Vortals and
targeting specific industries, adding value to the service provided by the
Vortals that focuses on the needs of the vertical market.
The Company's www.GroceryEC.com Vortal is currently a leading provider of web-
based B2B e-commerce in the grocery industry and supports the e-commerce
initiatives of nine grocery retailers. The Company hopes to support the
vendors and brokers of 50 grocery retailers by the end of the year 2000.
The Company plans to duplicate the process of providing broad vertical
industry support via additional Vortals.
The Company has also initiated a Hub and Spoke marketing program whereby large
companies that have a need to conduct e-commerce with a broad business partner
base can leverage the capabilities of EnterpriseEC at little or no cost,
provided they meet certain criteria. These criteria consists of:
A. A minimum of 100 potential business partners not currently doing
e-commerce with them;
B. A mandate to these business partners to conduct e-commerce combined with
a penalty for non-compliance (such as an assessment or handling fee for
processing paper-based documents) or an incentive for compliance (such as
better payment terms);
C. The Hub must provide a list of targeted business partners to the Company;
and
D. The Hub must make their business partners aware that EnterpriseEC or one
of its "Vortals" are available to satisfy the mandate.
No sole endorsement of the Company's products are necessary by the Hub company
to gain the benefits of the Hub and Spoke marketing program.
Management believes that the products and services offered by the Company,
combined with the Hub & Spoke marketing program, offer a unique service in the
B2B electronic commerce industry by combining the provision of network
services to large companies at significantly reduced cost with web-based
document processing capabilities for their trading partners which allows the
large company to get 100% participation from their potential trading partners.
This approach offers an excellent opportunity for Company growth.
COMPETITION
The B2B e-commerce market is highly competitive. Numerous companies supply B2B
e-commerce software products, private network services, Internet VAN services,
and Vortal capabilities. Many of the Company's competitors have significantly
greater financial and personnel resources than the Company, due in part either
to their revenue and profitability, or their market capitalization. The
Company's competitors range from small companies with limited resources to
large companies with substantially greater financial and marketing resources
than the Company. The Company believes that existing competitors who compete
with the Company in one segment of the market are likely to expand the range
of their e-commerce services to include other market segments the Company has
targeted or will target. In addition, the barrier to entry into the Company's
markets is not large so it is likely that new competitors will enter the
Company's markets on an ongoing basis. Also, large telecommunication, media,
and software companies may offer services in direct competition to the
Company. The Company believes the principal competitive factors in the
commercial B2B e-commerce industry include responsiveness to customer needs,
efficiency in the delivery of solutions, ease of product use, quality of
service, price and value. The Company believes it competes favorably with
regard to those factors.
INTELLECTUAL AND PROPRIETARY RIGHTS
The Company regards portions of its software products and other designs
including its web site designs, as proprietary and will attempt to protect
them by all available means including trade secret laws, employee and third-
party nondisclosure agreements, and built-in software protections.
Although the Company believes that its current technology and designs have
been independently developed, there can be no assurance that the technology
does not or will not infringe on the rights of others. The Company has no
patents or registered copyrights pertaining to its products, and it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to "reverse engineer" or otherwise obtain and use, to
the Company's detriment, information that the Company regards as proprietary.
Moreover, the laws of some countries do not offer the same protection to the
Company's proprietary rights as do those of the United States and Canada.
There can be no assurance that legal protections relied upon by the Company to
protect its proprietary position will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to those utilized by the Company. It is the intention
of the Company to apply for patent protection of any processes or business
methods determined to be patentable and in the best interest of the Company to
do so.
The Company owns United States trademark rights to "EnterpriseEC" and
"FORMULA_ONE". Other trademarks may be acquired by the Company if and when
management determines that it is in the best interest of the Company to do so.
THIRD PARTY TECHNOLOGY
The Company incorporates in its products certain software licensed to it by
other software developers. These include software components and objects
licensed from various vendors. The Company also relies on licensed software
development tools, database software, and server software from third party
providers for the development and operation of its products.
If the Company was deprived of the right to use software incorporated in its
products for any reason, or if the tools utilized in the development of its
products were discontinued or the capabilities contained in future releases
were not up to the standards set by the Company, there could be serious
disruption to its business.
YEAR 2000 READINESS
The Year 2000 issue relates to the ability of a computer system to properly
process data after January 1, 2000. Company efforts were spent to ensure that
its computer products were "Year 2000 Ready," as defined, and that its
internal core information technology (IT) and non-IT systems were Year 2000
Ready. The Company believes it successfully implemented its Year 2000
program, as evidenced by the continued successful operation of its computer
products and core internal IT and non-IT systems. The Company has not
encountered any significant problems with its third-party customers, financial
institutions, vendors and others with whom it conducts business. The Company
will continue to monitor its product performance and core IT and non-IT
systems throughout 2000 to ensure ongoing performance. While there can be no
assurance that no Year 2000 related issues will arise, as of June 30, 2000,
the Company believes, based on information currently available, that Year 2000-
related events are not likely to have a material effect on its results of
operation, financial condition or liquidity.
EMPLOYEES
The Company believes its success depends to a significant extent on its
ability to attract, motivate and retain highly skilled vision-oriented
management and employees. To this end, the Company intends to focus on
incentive programs for its employees and, will endeavor to create a corporate
culture which is challenging, rewarding and enhances the employees career
development. As of June, 2000, the Company had 22 full-time and two part-time
employees. Sixteen employees are technical personnel engaged in developing,
maintaining or providing technical support for the Company's products and
services, four employees are marketing and sales personnel, and four are
involved in administration and finance.
RESEARCH AND DEVELOPMENT
The Company conducts research and development on two levels on a continuing
basis. First, the Company continually studies the business processes in the
B2B industry, as well as the vertical industries it targets. A pivotal part
of the success of the Company's products is in understanding the exact needs
of its customers, and applying that knowledge to its products and services.
Second, core technology research, development and engineering is conducted on
a continual basis. New technologies associated with the Internet and
standards for conducting e-commerce (such as extensible markup language or
"XML") and the commercial product development software that support it are
continually being researched and incorporated into the Company's products when
deemed necessary.
GOVERNMENT REGULATION
Based upon its experience and knowledge of the industry, the Company believes
that its products comply substantially with applicable regulations in the
markets which the Company has targeted, however, there can be no assurances
that the future regulations or laws will not be adopted which would have an
adverse effect on the Company. The Company cannot predict the extent or
impact of future legislation or regulation by federal, state or local
authorities.
RECENT PRIVATE OFFERINGS
On April 10, 2000, the Company entered into the Stock Purchase Agreement with
HFG and Beroff. This Stock Purchase Agreement was a requirement by Edict in
order to consummate the merger with Twilight. The Stock Purchase Agreement
requires HFG and Beroff, or their designees, to purchase 141,500 shares of
Common Stock each for a purchase price of $150,000 within 90 days of the
effective date of the Merger. The date of purchase has been delayed by
agreement of the parties and shall occur within 5 days after the filing of
this Form 10SB. The Stock Purchase Agreement will require that the Twilight
issue 283,000 shares of Common Stock for an aggregate consideration of
$300,000 (approximately $1.06 per share). At the time of execution of the
Stock Purchase Agreement, shares of Common Stock were trading at approximately
$1.06 per share. This offering was made pursuant to Section 4(2) under the
Securities Act of 1933.
RISK RACTORS
An investment in Common Stock is very risky. Investors should carefully
consider the following risk factors in addition to the other available
information about the Company before purchasing Common Stock. Each of the
following risks could have a material adverse effect on the business,
financial condition or operating results of the Company. In such a case, the
trading price of Common Stock would probably decline, and investors may lose
all or part of their investment.
THE COMPANY'S LIMITED OPERATING EXPERIENCE MAY CAUSE IT TO MISJUDGE ITS
MARKETS OR NEEDS
Although the Company has been providing software and solutions for the e-
commerce market since 1990, its involvement in Internet-based products and
services has been a much more recent development. Its initial Internet
product has been in operation for approximately six months. Accordingly, the
Company has an extremely limited operating history in this environment. An
investor in Common Stock must consider the risks, uncertainties, expenses and
difficulties frequently encountered by companies in their early stages of
development.
THE COMPANY MAY BE UNABLE TO IMPLEMENT ITS BUSINESS STRATEGY
Although the Company believes its strategy can be successful, there are many
reasons why it may be unable to implement it, including the Company's
inability to:
1. deploy EnterpriseEC and its Vortals on a large scale due to software
development or other problems;
2. attract a sufficiently large audience of users to its Internet-based e-
commerce network and Vortals;
3. increase awareness of its brand;
4. strengthen customer loyalty;
5. continue to develop and improve its products;
6. continue to develop and upgrade its technology; and
7. attract, retain and motivate qualified personnel.
THE COMPANY HAS A RECENT HISTORY OF OPERATING LOSSES AND ANTICIPATES IT WILL
INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
As the Company moves from software-only products to providing products and
services over the Internet, it has experienced increasing operating losses.
In the 1999 fiscal year, the Company experienced a net loss of $46,692 on
revenues of $824,443. The Company anticipates that operating losses will
continue for the foreseeable future and may be much larger due to the
investment of capital resources in EntepriseEC and Vortal products. Also, as
more companies move from software to Internet solutions, the Company has
experienced declining revenues for its FORMULA_ONE software product and
expects this decline to continue for the foreseeable future. The Company's
future profitability depends, in part, on:
1. the success of its product development efforts;
2. the acceptance of its business model by targeted customers; and
3. its sales and marketing activities.
The success of the Company's business model depends upon potential customers
being attracted to and using its Internet-based B2B e-commerce products and
services. This business model is not yet proven, and the Company cannot
assure that it will ever achieve or sustain profitability or that its
operating losses will not increase in the future.
THE COMPANY'S REVENUES COULD DECREASE AS IT TRANSITIONS FROM ITS HISTORICAL
SOFTWARE BUSINESS MODEL TO A TRANSACTION-BASED BUSINESS MODEL
The Company is currently transitioning its business model to focus on
providing customers with the ability to process their e-commerce documents via
the Internet for fees based on the number and/or size of the transactions.
The Company expects that this model will provide an increase in recurring
revenues, but may also result in a decrease in up-front licensing and sales
revenue the Company receives from its software products which would have
normally been offered to potential customers.
Under the new model, the Company provides transaction services which involves
customers paying for transactions that they process. The Company believes
that this service will allow its customers to receive, transmit, and process
e-commerce documents without having to bear significant up-front software and
on-going VAN expenditures. Any failure in the Company's ability to implement
and grow its Internet-based services could have a material adverse affect on
the Company's business and financial results. In addition, the Company's
business and financial results could also suffer if revenue from increased
volume experienced by existing and new customers does not make up for the
loss in revenue from the decrease in the per-customer amount of up-front
licensing fees and other charges for its software products.
THE COMPANY'S OPERATING RESULTS COULD FLUCTUATE, CAUSING ITS STOCK PRICE TO
FALL
Due to the volatile nature of "Internet Stocks" and particularly "over the
counter" or "bulletin board" stocks, the Company's stock price could be
adversely affected based on fluctuations in its operating results.
THE COMPANY MAY BE UNSUCESSFUL AT MANAGING ITS GROWTH
The Company believes its business model has the potential for rapid growth.
This growth could place a significant strain on management and operations,
including sales, marketing, customer support, research and development,
finance and administrative operations. Achieving and maintaining profitability
during a period of expansion will depend, among other things, on the Company's
ability to successfully expand its products, services and markets and to
manage its operations effectively. Difficulties in managing growth, including
difficulties in obtaining and retaining talented management and product
development personnel could have a material adverse affect on the Company's
business and financial results.
THE COMPANY HAS RECENTLY INTRODUCED SEVERAL NEW PRODUCTS, AND MARKET
ACCEPTANCE OF THESE PRODUCTS IS CRITICAL TO THE COMPANY'S SUCCESS
The Company recently introduced its EnterpriseEC and www.GroceryEC.com
products. As of June, 2000 approximately 450 customers were utilizing these
products. Broad and timely acceptance of the Company's recently-introduced
products, which is critical to its future success, is subject to a number of
significant risks. These risks include:
1. the ability to successfully market and sell these products;
2. the product's ability to support large numbers of customers;
3. the need to enhance the features and services of the
Company's products; and
4. the need to significantly expand internal resources to
support planned growth of these products.
Although the Company expects to derive a significant portion of its long-term
future revenue from its recently introduced products, it has not yet finalized
its pricing and revenue models for these products. If these products do not
achieve the level of market acceptance anticipated, the Company's business and
financial results would suffer.
SYSTEM ENHANCEMENTS, UPGRADES AND OTHER FACTORS COULD CAUSE SERVICE
DISRUPTIONS OF INTERNET-BASED PRODUCTS
As the Company enhances and upgrades its Internet-based products, customers
could suffer temporary service interruptions. Other factors, such as
unauthorized intervention and access into the Company's servers may also cause
system delays or denials of service. The Company has and will continue to take
steps to ensure that such disruptions do not occur, and that any disruptions
that do occur are insignificant. However, any problems not resolved in a
timely manner could negatively affect the Company's business and financial
results.
IF THE COMPANY ACQUIRES OTHER COMPANIES, IT MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THEM
Currently, there are no plans to acquire any other companies, but it may be
deemed advantageous to the Company's growth to do so. If the Company is
unable to effectively integrate any acquired company, the results could
negatively affect the Company's business and financial results.
THE COMPANY'S CAPITAL RESOURCES MAY BE INSUFFICIENT TO FUND IMPLEMENTATION OF
ITS PRODUCTS, SERVICES AND MARKETING ITS ADVANTAGES TO POTENTIAL USERS
Substantial funds are required to complete the Company's planned product
development efforts and expand its sales and marketing activities. The
Company expects that existing capital resources along with cash flows
generated from its current activities will be adequate to fund its operations
through the year 2000, but the Company cannot guarantee that this will be the
case. The Company's future capital requirements and the adequacy of
available funds will depend on numerous factors, including:
1. the successful marketing of existing products;
2. progress in product development efforts to enhance and generate new
products and vertical industry support; and the
growth and success of effective sales and marketing activities.
If funds generated from the Company's operations, together with its existing
capital are insufficient to meet current or planned operating requirements,
the Company will have to obtain additional funds through equity or debt
financing, strategic alliances with corporate partners, or through other
sources. The Company does not have any committed sources of additional
financing, and it cannot provide assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate
funds are not available, the Company may have to delay, scale-back or
eliminate certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others. This may result in the
Company relinquishing its rights to certain of its technologies, products or
potential markets. Therefore, the inability to obtain adequate funds could
have a material adverse impact on its business, financial condition and
results of operations.
PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET
To date, the Company has experienced success on a limited basis for its
FORMULA_ONE, BCLM, EntepriseEC, and Vortal products.
The FORMULA_ONE product, although initially available as a DOS program in 1992
and later available to segments of its customer base in Microsoft Windows, has
had limited success. This is primarily due to the Company's lack of sales and
marketing efforts and the Company being under-capitalized.
The BCLM products have had limited success due to the fact that they require,
in most cases, FORMULA_ONE being used.
The EnterpriseEC and the Company's first Vortal, www.GroceryEC.com, products
have only been available since October, 1999 and have experienced a moderate
level of success.
LIMITED SALES AND MARKETING EXPERIENCE
A major thrust of the Company's strategy is to make potential customers aware
of its products, their features and benefits. This will require sales and
marketing expertise. However, the Company's current sales and marketing staff
is small compared to competitors and some have limited sales and marketing
experience. Although the Company intends to identify and recruit employees
with sales and marketing experience, it may be unable to do so and may
therefore be unable to successfully establish and maintain a significant sales
and marketing organization.
THE COMPANY'S ABILITY TO RECRUIT AND RETAIN SKILLED EMPLOYEES
The Company is substantially dependent on the continued services and
performance of its president and other key employees. In addition, the
Company believes it will need to expand significantly its product development,
marketing and customer service staffs. Competition for employees in the
Company's industry is intense. If the Company is unable to attract,
assimilate and retain highly qualified employees, management may not be able
to effectively manage the business, explore opportunities and respond to
competitive challenges, and the Company's business and financial results will
suffer. Many competitors may be able to offer more lucrative compensation
packages which include stock options and other stock-based compensation and
higher-profile employment opportunities.
INABILITY TO COMPETE SUCCESSFULLY AGAINST COMPANIES OFFERING SIMILAR
FUNCTIONS
A large number of companies compete with us for customers, e-commerce
transactions and other sources of on-line revenue. The number of companies
offering B2B e-commerce services is large and increasing at a rapid rate. In
addition, other large organizations not currently in the Company's market may
enter the market. The Company believes that competition for B2B e-commerce
products and services will continue to increase as the Internet develops as a
communication and commercial medium. Although the Company believes its
products and marketing strategy are unique, the Company competes directly and
indirectly for customers with numerous Internet and non-Internet businesses,
including:
1. traditional VANs (Sterling Commerce, Harbinger, IBM, GE Information
Services, MCI, AT&T, etc.);
2. Internet VANs (Internet Commerce Corporation, Harbinger, SPS, etc.);
3. web-based B2B e-commerce companies (EB2B Inc., SPS, Harbinger, Sterling
Commerce, etc.); and
4. traditional EDI Software Vendors (Harbinger, SPS, etc.).
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to the Company, including:
1. the ability to offer a wider array of products and services;
2. larger production and technical staffs;
3. greater name recognition and larger marketing budgets and resources;
4. larger customer and user bases; and
5. substantially greater financial, technical and other resources.
To be competitive, the Company must respond promptly and effectively to the
challenges of technological change, evolving standards and competitors'
innovations by continuing to enhance its products and services, as well as its
sales and marketing channels. Increased competition could result in loss of
market share, reduced prices or reduced margins, any of which could adversely
affect the Company's business. Competition is likely to increase
significantly as new companies enter the market and current competitors expand
their services.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT THE COMPANY
The Company is subject to government regulation. Laws and regulations have
been or may be adopted with respect to the Internet or other on-line services
covering issues such as:
1. user liability and privacy;
2. copyright protection; and
3. distribution.
The applicability to the Internet of existing laws in various jurisdictions
governing issues is uncertain and may take years to resolve. Demand for the
Company's features and services may be affected by additional regulation of
the Internet. Federal, State, or governments of foreign countries may attempt
to regulate the Company's transmissions, levy sales or other taxes relating to
the Company's activities or impose other restrictions on the Company's
services. The laws governing the Internet, however, remain largely unsettled,
even in areas where there has been some legislative action. In addition, the
growth and development of the market for B2B e-commerce may prompt the
adoption of more stringent laws, both in the United States and abroad, that
impose additional burdens on companies conducting business over the Internet.
The requirement that the Company comply with any new legislation or
regulation, or any unanticipated application or interpretation of existing
laws, may decrease the demand for the Company's services, increase the cost of
doing business or otherwise have a material adverse effect on the Company's
business, results of operations and financial condition.
INTERNET CAPACITY CONSTRAINTS MAY INHIBIT THE COMPANY'S SUCCESS.
The Company's success depends, in large part, on Internet access and the
ability of the Internet to accommodate rapidly increasing traffic. The
Internet may not prove to be a viable commercial medium because of inadequate
development of the necessary infrastructure (e.g., reliable network backbone),
timely development of complementary products (e.g., high speed modems), delays
in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity, or increased government
regulation. If the Internet continues to experience significant growth in the
number of users and the level of use, then the Internet infrastructure may not
be able to continue to support the demands placed on it.
RISKS RELATED TO SYSTEMS OPERATION
The Company relies on the Internet and, accordingly, depends upon the
continuous, reliable and secure operation of Internet servers and related
hardware and software. Recently, several large Internet commerce companies
have suffered highly publicized system failures which resulted in adverse
reactions to their stock prices, significant negative publicity and, in
certain instances, litigation. Although agreements are in place to host the
Company's systems and provide bandwidth with suitable precautions in place to
prevent system failures and outages, it is likely that the Company will also
suffer service outages from time to time. To the extent that the Company's
service is interrupted, its users will be inconvenienced and the Company's
reputation may be diminished. Some of these outcomes could directly result in
a reduction in the Company's stock price, significant negative publicity and a
potential for litigation. Although the Company anticipates that its computer
and communications hardware will be protected through physical and software
safeguards, they will still be vulnerable to fire, storm, flood, power loss,
telecommunications failures, physical or software break-ins and other similar
events. The Company does not currently have full redundancy for all of the
Company's computer and telecommunications facilities in separate geographic
locations to counter an area-wide catastrophe where the Company does business.
A catastrophic event could have a significant negative effect on the Company's
business, results of operations, and financial condition.
The Company also depends upon third parties to provide potential users with
web browsers and Internet and on-line services necessary for access to the
Company's services. It is possible that users will experience difficulties
with the Internet and other on-line services due to system failures, including
failures unrelated to the Company's systems. Any sustained disruption in
Internet access provided by third parties could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company also retains confidential customer information in the Company's
database. It is, therefore, critical that the Company's facilities and
infrastructure remain secure and that the facilities and infrastructure are
perceived by consumers to be secure. Despite the implementation of measures
in the Internet industry, the Company's infrastructure is potentially
vulnerable to physical break-ins, computer viruses, programming errors or
similar disruptive problems. A material security breach could damage the
Company's reputation or result in liability.
THE COMPANY'S PLATFORM INFRASTRUCTURE AND ITS SCALABILITY ARE NOT PROVEN
If the Company's Internet-based products are used by an increasing number of
users, the network infrastructure would need to be expanded from time to time.
In addition, the Company will need to accommodate changing customer
requirements. The Company may not be able to accurately project the rate or
timing of increases, if any, in the use of its systems or to expand and
upgrade the systems and infrastructure to accommodate such changes on a timely
basis, at a commercially reasonable cost, or at all. The systems may not
accommodate increased use while maintaining acceptable overall performance.
POTENTIAL LIABILITY IF CONFIDENTIAL INFORMATION IS DISCLOSED INAPPROPRIATELY
These types of claims have been brought, sometimes successfully, against on-
line service providers in the past. Any such liability will have a material
adverse effect on the Company's reputation, business, results of operations or
financial position.
DEPENDENCY ON INTELLECTUAL PROPERTY RIGHTS
The Company's intellectual property is important to its business. The Company
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect its
intellectual property. The Company's efforts to protect its intellectual
property may not be adequate. Competitors may independently develop similar
technology or duplicate the Company's products or services. Unauthorized
parties may infringe upon or misappropriate the Company's products, services
or proprietary information. In addition, the laws of some foreign countries
do not protect proprietary rights as well as the laws of the United States,
and the global nature of the Internet makes it difficult to control the
ultimate destination of its products and services. In the future, litigation
may be necessary to enforce the Company's intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any
such litigation could be time-consuming and costly. The Company could be
subject to intellectual property infringement claims as the number of
competitors grows and the content and functionality of its services overlaps
with competitive offerings. Defending against these claims, even if not
meritorious, could be expensive and divert the Company's attention from its
operations. If the Company becomes liable to third parties for infringing
their intellectual property rights, it could be required to pay a substantial
damage award and forced to develop noninfringing technology, obtain a license
or cease selling the applications that contain the infringing technology. The
Company may be unable to develop noninfringing technology or obtain a license
on commercially reasonable terms, or at all. The Company also intends to rely
on a variety of technologies that it will license from third parties,
including any product development, database, and Internet server software,
which will be used to operate its products and services. These third-party
licenses may not be available to the Company on commercially reasonable terms.
If the Company were deprived of the right to use software incorporated in
its products for any reason, or if the tools utilized in the development of
its products were discontinued or the capabilities contained in future
releases were not up to the standards set by the Company, there could be a
serious disruption to the business.
THE COMPANY'S OFFICERS HAVE EFFECTIVE CONTROL OF THE COMPANY AND OTHER
STOCKHOLDERS MAY HAVE LITTLE OR NO VOICE IN CORPORATE MANAGEMENT
The President beneficially owns approximately 64.6% of the outstanding shares
of Common Stock. As a result, this Stockholder effectively controls the
election of directors and matters requiring approval by the Company's
Stockholders. Thus, he may be able to prevent corporate transactions such as
future mergers which might be favorable from the Company's standpoint or the
standpoint of the other Stockholders.
THE COMPANY MAY NOT ACHIEVE PROFITABILITY
The profit potential of the Company's business model is unproven. The
Company's revenue is dependent on the number of customers who subscribe to
its EnterpriseEC service and Vortals and the volume of the data, documents or
other information they send or retrieve utilizing this service. The success
of the EnterpriseEC service, the Vortals, and other proposed services depends
to a large extent on the future of B2B e-commerce using the Internet, which is
uncertain. In addition, the Company expects its cost of sales and operating
expenses to increase significantly, especially in the areas of marketing,
product development, and customer service. As a result, the Company expects
to incur additional losses in the future. If the Company experiences a
shortfall in its estimated revenue, it may be unable to adjust spending in a
timely manner and may not achieve profitability.
INABILITY TO OBTAIN FUTURE CAPITAL
As of the date of this filing, the Company had cash in the amount of
approximately $70,000 and is expecting to raise an additional $300,000 via a
Stock Purchase Agreement executed on April 10, 2000 whereby the participants
of the stock purchase agreement will purchase 283,000 shares of Common Stock
for $300,000 within ninety days of the agreement. The Company anticipates
that it may need to raise additional funds if its operations do not generate
the revenues anticipated. If the Company is unable to obtain necessary
additional financing, its business may suffer. It cannot be assured that any
additional financing will be available on reasonable terms or at all. In
addition, the Company may need to raise additional funds sooner if it attempts
to expand more rapidly or if competitive pressures or technological changes
are greater than anticipated. Even if the Company is able to obtain
additional financing, the Company will subsequently need to raise additional
funds if it does not become profitable or if achieving profitability takes
longer than anticipated.
INTERNET USAGE STAGNATES OR THE INTERNET'S INFRASTRUCTURE FAILS
If the Internet does not gain increased acceptance for B2B e-commerce, the
Company will not grow and profitability will be hampered. Concerns about the
security of on-line transactions and the privacy of users may inhibit the
growth of the Internet as a means of delivering business documents and data.
The Company may need to incur significant expenses and use significant
resources to protect against the threat of security breaches or to alleviate
problems caused by security breaches. The Company cannot be certain that the
infrastructure or complementary services necessary to maintain the Internet as
a useful and easy means of transferring documents and data will continue to
develop.
DEPENDENCY ON DATA CENTERS, WHICH COULD BE DESTROYED OR DAMAGED
The Company's Internet-based products are dependent upon the ability to
protect computer equipment and the information stored on this equipment
against damage that may be caused by fire, power loss, telecommunication or
Internet failures, unauthorized intrusion, computer viruses and disabling
devices, internal errors and other similar events. The Company currently
leases space in a data center located in Dayton, Ohio which provides physical
security (24 hour security guards), environment control (humidity and
temperature), and electricity (battery operated, backfilled from the Dayton
power grid, with six hours of battery backup in the event of a power failure).
Additional motor generator services are available within the six hour battery
backup timeframe if necessary) and bandwidth (three Internet backbone
providers with load balancing). The Company also maintains backup systems at
its facility in Beavercreek, Ohio located approximately twelve miles from the
data center. In the event of a regional catastrophe, the Company may suffer a
significant loss to its systems and may be unable to provide services to
customers which would have a substantial effect on the Company.
Depending on future financial position, the Company has plans to lease backup
data center space which is geographically separated from its current data
center with procedures to provide for switching to the backup data center in
the event of a catastrophic event or system failure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's consolidated financial
condition and results of operation for the fiscal years ended December 31,
1999 and 1998, and for the fiscal quarters ended March 31, 1999 and 1998,
should be read in conjunction with the Company's consolidated financial
statements included elsewhere herein. The Company believes that the merger of
Sub into EDICT, effective as of April 10, 2000, will have substantial impact on
its future operating results.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - FISCAL YEARS 1999
AND 1998 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR
ENDED DECEMBER 31, 1998
Due to the merger with EDICT Systems, Inc. on April 10, 2000, Twilight
Productions and EDICT Systems results of operations for the year ended
December 31, 1999 are being presented separately, and then pro-forma with
Twilight Productions and EDICT Systems combined as if the merger occurred on
January 1, 1999.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998 FOR TWILIGHT PRODUCTIONS, LTD.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Twilight has incurred losses since
its inception, and has an accumulated deficit of $739,192 and $351,108 for the
years ended December 31, 1999 and December 31, 1998, respectively. Twilight
has financed its operations to date primarily through the sale of Common Stock
and options to purchase Common Stock.
REVENUE
During the last two fiscal years, Twilight Productions produced no revenues
other than interest income of $11,831 in 1999 as compared to $19,025 for
fiscal 1998. The decrease in interest income is due to the nature and overall
return of the investments made by Twilight.
COST OF OPERATIONS
Cost of operations consisted of general and administrative expenses of
$123,865 for 1999 as compared to $115,937 for 1998 and a write down to the net
realizable value of zero the cost of the two feature-length films the company
developed but never sold ($276,050). The increase in cost of operations is
due to higher general and administrative costs.
NET PROFIT/LOSS
Twilight experienced a net loss in 1999 of $388,084 versus a net loss in 1998
of $96,912. The increased loss is primarily attributable to the write down to
the net realizable value of zero the cost of the two feature-length films the
company developed but never sold ($276,050).
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments decreased to
$229,666 in 1999 from $361,648 in 1998. The decrease is primarily
attributable to higher general and administrative fees along with lower
investment income.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED
DECEMBER 31, 1998 FOR EDICT SYSTEMS, INC.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. EDICT Systems has incurred a loss
before taxes in 1999 of $49,509 and in 1998 of $9,318. EDICT Systems has
financed its operations with internally generated cash flow from operations
and debt instruments - bank lines of credit.
REVENUE
EDICT Systems had revenues in 1999 of $824,443 versus revenues of $690,068 in
1998. The increase in revenues is due to increased sales and marketing
activity of the company's software products.
COST OF OPERATIONS
EDICT Systems had total operating expenses (including depreciation and
amortization) of $873,952 in 1999 versus $699,386 in 1998. The increase is
due to higher administrative expenses, the addition of several employees, and
investment in the development and marketing of EnterpriseEC and its first
Vortal, www.GroceryEC.com.
INCOME TAX BENEFITS
EDICT Systems recorded an income tax benefit of $2,817 in 1999 and $10,740 in
1998 due primarily to the difference between accrual basis accounting for
financial reporting purposes and the cash basis for tax purposes.
NET PROFIT/LOSS
The company experienced a net loss in 1999 of $46,692 versus a net income in
1998 of $1,422. The net loss in 1999 is primarily attributable to higher
administrative expenses, the addition of several employees, and investment in
the development and marketing of EnterpriseEC and www.GroceryEC.com.
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments decreased to
$3,420 in 1999 from $16,548 in 1998. The decrease is attributable primarily
to expenditures for equipment purchases and capitalized software costs that
were offset by cash provided by operations and proceeds from the bank lines
of credit.
MANAGEMENT'S DISCUSSION AND ANALYSIUS OF FINANCIAL CONDITION - 1st QUARTER
2000 AND 1999 RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2000 COMPARED TO
QUARTER ENDED MARCH 31, 1999
Due to the merger with EDICT Systems, Inc. on April 10, 2000, Twilight
Productions and EDICT Systems results of operations for the quarter ended are
being presented separately, and then pro-forma with Twilight Productions and
EDICT Systems combined as if the merger occurred on January 1, 2000.
RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED
MARCH 31, 1999 FOR TWILIGHT PRODUCTIONS, LTD.
REVENUE
During first quarter ended March 31, 2000 and the first quarter ended March
31, 1999, Twilight Productions produced no revenues other than interest income
of $1,632 in Q1 2000 as compared to $3,980 for Q1 1999. The decrease in
interest income is due to the nature and overall return of the investments
made by the company.
COST OF OPERATIONS
Cost of operations consisted of general and administrative expenses of
$15,147.40 for Q1 2000 as compared to $31,104 for Q1 1999. The decrease in
cost of operations is due to lower general and administrative costs.
NET PROFIT/LOSS
The company experienced a net loss for Q1 2000 of $13,515 versus a net loss
for Q1 1999 of $27,124. The decreased loss is primarily attributable to lower
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments in Q1 2000
was $216,151 versus the balance of Cash, Cash Equivalents, and Short-term
Investments in Q1 1999 of $329,880. The decrease is primarily attributable to
higher general and administrative fees along with lower investment income.
RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED
MARCH 31, 1999 FOR EDICT SYSTEMS, INC.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. EDICT Systems has incurred a loss
before taxes in Q1 2000 of $102,006 versus a net loss of $19,078 in Q1 1999.
EDICT Systems has financed its operations with internally generated cash flow
from operations and debt instruments (e.g. bank lines of credit).
REVENUE
EDICT Systems had revenues in Q1 2000 of $199,623 versus revenues of $172,952
in Q1 1999. The increase in revenues is due to increased sales and marketing
activity of the Company's software products.
COST OF OPERATIONS
EDICT Systems had total operating expenses (including depreciation and
amortization) of $301,629 in Q1 2000 versus $192,030 in Q1 1999. The increase
is due to higher administrative expenses, the addition of several employees,
and investment in the development and marketing of EnterpriseEC and its first
Vortal, www.GroceryEC.com, and charges related to the merger with Twilight
Productions, Ltd.
INCOME TAX BENEFITS
EDICT Systems recorded an income tax benefit of $20,503 in Q1 2000 and $3,835
in Q1 1999 due primarily to the difference between accrual basis accounting
for financial reporting purposes and the cash basis for tax purposes.
NET PROFIT/LOSS
The Company experienced a net loss in Q1 2000 of $81,503 versus a net loss in
Q1 1999 of $15,243. The net loss in 1999 is primarily attributable to higher
administrative expenses, the addition of several employees, and investment in
the development and marketing of EnterpriseEC and www.GroceryEC.com, and
charges related to the merger with Twilight Productions, Ltd.
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments for Q1 2000
was $13,724 versus the balance of Cash, Cash Equivalents, and Short-term
Investments for Q1 1999 of $26,168. The decrease is attributable primarily
to expenditures for equipment purchases and capitalized software costs that
were offset by cash provided by operations and proceeds from the bank lines
of credit.
RESULTS OF OPERATIONS QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED
JUNE 30, 1999 FOR TWILIGHT PRODUCTIONS, LTD. AND SUBSIDIARY (EDICT SYSTEMS,
INC.)
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Twilight and Subsidiary (EDICT
Systems)
has incurred a loss before taxes in Q2 2000 of $212,104 versus a loss before
taxes
of $38,545 in Q2 1999. The Company has financed its operations with existing
cash balances and debt instruments (e.g. bank lines of credit).
REVENUE
The Company had revenues in Q2 2000 of $171,346 versus revenues of $193,591
in Q2 1999. The decrease in revenues is due to reduced sales of the company's
software products and license fees offset partially by increased revenues in
its internet electronic commerce business.
COST OF OPERATIONS
The Company had total operating expenses (including depreciation and
amortization) of $383,450 in Q2 2000 versus $232,136 in Q2 1999. The increase
is due to higher administrative expenses, the addition of several employees,
investment in the development, marketing and maintenance and support of
EnterpriseEC and its first Vortal, www.GroceryEC.com,
and merger related charges.
INCOME TAX BENEFITS
The Company recorded an income tax benefit of $64,153 in Q2 2000 and $2,277
in Q2 1999 due to the recognition of net operating loss carryforwards.
NET PROFIT/LOSS
The Company experienced a net loss in Q2 2000 of $147,951 versus a net loss in
Q2 1999 of $36,268. The higher net loss in 2000 is primarily attributable to
higher administrative expenses, the addition of several employees, investment
in the development and marketing of EnterpriseEC and www.GroceryEC.com, and
merger related charges.
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments for Q2 2000
was $67,211 versus the balance of Cash, Cash Equivalents, and Short-term
Investments for Q2 1999 of $318,157. The decrease is attributable primarily
to expenditures for equipment, capitalized software costs, and operating
activities. Proceeds from borrowings on bank lines of credit and other note
payable were used to finance operating activities.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1999 FOR TWILIGHT PRODUCTIONS, LTD. AND
SUBSIDIARY (EDICT SYSTEMS, INC.)
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Twilight and Subsidiary (EDICT
Systems)
has incurred a loss before taxes in six months ended June 30, 2000 of
$327,625 versus a loss before taxes of $84,747 in six months ended June 30,
1999. The Company has financed its operations with existing cash balances
and debt instruments (e.g. bank lines of credit).
REVENUE
The Company had revenues in six months ended June 30, 2000 of $372,601
versus revenues of $370,523 in six months ended June 30, 1999, as reduced
sales of the company's software products and license fees were approximately
offset by increased revenues in its internet electronic commerce business.
COST OF OPERATIONS
The Company had total operating expenses (including depreciation and
amortization) of $700,226 in six months ended June 30, 2000 versus $455,270
in the six months ended June 30, 1999. The increase is due to higher
administrative expenses, the addition of several employees, investment
in the development, marketing and maintenance and support of EnterpriseEC
and its first Vortal, www.GroceryEC.com, and merger related charges.
INCOME TAX BENEFITS
The Company recorded an income tax benefit of $84,656 in the six months ended
June 30, 2000 and $6,112 in the six months ended June 30, 1999 due to
the recognition of net operating loss carryforwards and carryback.
NET PROFIT/LOSS
The Company experienced a net loss in the six months ended June 30, 2000
of $242,969 versus a net loss in the six months ended June 30, 1999 of
$78,635. The higher net loss in 2000 is primarily attributable to higher
administrative expenses, the addition of several employees, investment
in the development and marketing of EnterpriseEC and www.GroceryEC.com,
and merger related charges.
LIQUIDITY AND CAPITAL RESOURCES
The balance of Cash, Cash Equivalents, and Short-term Investments at
June 30,200 was $67,211 versus the balance of Cash, Cash Equivalents,
and Short-term Investments at June 30, 1999 of $318,157. The decrease
is attributable primarily to expenditures for equipment, capitalized
software costs, and operating activities. Proceeds from borrowings on
bank lines of credit and other note payable were used to finance operating
activities.
ITEM 3. DESCRIPTION OF PROPERTY
The Company presently maintains its principal place of business in two
adjacent facilities at 1619 and 1635 Mardon Drive, Beavercreek, Ohio, 45432
with the primary address being 1619 Mardon Dr., Beavercreek, Ohio, 45432.
These buildings provide a total of approximately 3,000 square feet of useable
office space. Both facilities are leased for a total of $3,000 per month, at
below-fair market price, triple net lease from the Company's President on a
month-to-month basis.
The Company expects that the current facilities will be adequate for FY 2000
but that a larger, combined facility may be necessary if the Company adds
significant additional personnel. The Company has initiated a search for a
suitable facility located in the greater Dayton, Ohio area in the event that
additional space is necessary.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of May 1, 2000, the number and percentage of
the outstanding shares of Common Stock which, according to the information
supplied to the Company, were beneficially owned by (i) each person who is
currently a director of the Company, (ii) each executive officer, (iii) all
current directors and executive officers of the Company as a group and
(iv) each person who, to the knowledge of the Company, is the beneficial owner
of more than 5% of the outstanding Common Stock.
Except as otherwise indicated, the persons named in the table have sole voting
and dispositive power with respect to all shares beneficially owned, subject
to community property laws where applicable.
(i) The following table has been completed for each Director of the Company:
<TABLE>
<CAPTION>
Common Options Percent of
Name and Address Shares Class
<S> <C> <C> <C>
Jason Wadzinski 3,658,508 0 64.6
32 E. National Rd.
Englewood, OH 45322
John F. Sheffs 339,172 0 6.0
3545 Woodgreen Dr.
Beavercreek, OH 45434
</TABLE>
(ii) The following table has been completed for each of Executive Officers of
the Company:
<TABLE>
<CAPTION>
Common Options Percent of
Name and Address Shares Class
<S> <C> <C> <C>
Jason Wadzinski 3,658,508 0 64.6
32 E. National Rd.
Englewood, OH 45322
</TABLE>
(iii) The following table has been completed for all Directors and Executive
Officers of the Company as a group:
<TABLE>
<CAPTION>
Common Options Percent of
Shares Class
<S> <C> <C> <C>
All Officers and 3,997,680 0 70.6
Directors as a
Group (2 persons)
</TABLE>
(iv) The following table has been completed for those persons known to the
company as beneficial owners of five percent or more of the Company's
voting Common Stock:
<TABLE>
<CAPTION>
Common Options Percent of
Name and Address Shares Class
<S><C><C><C>
Jason Wadzinski 3,658,508 0 64.6
32 E. National Rd.
Englewood, OH 45324
John F. Sheffs 339,172 0 6.0
3545 Woodgreen Dr.
Beavercreek, OH 45434
Halter Financial Group 170,000<F1> 0 3.0
14160 Dallas Parkway, Suite 950
Dallas, TX 75240
Art Howard Beroff 275,000<F1><F2> 0 4.9
156-34 88th. Street
Howard Beach, NY 11414
5,661,173
<FN>
<F1>
Does not include 141,500 shares that Beroff and Halter Financial, or their
designees, are each required to purchase on or before July 5, 2000 pursuant to
the Stock Purchase Agreement. Neither Beroff nor Halter has purchased these
shares as of the filing date of this Form 10SB. The date of purchase has been
delayed by agreement of the parties and shall occur within 5 days after the
filing of this Form 10SB.
<F2>
Does not include 80,000 shares of which Art Howard Beroff disclaims beneficial
ownership.
</FN>
</TABLE>
Upon completion of the share purchase, assuming that Halter and Beroff
purchase all of the additional shares (as opposed to one or more of their
designees), Halter will own approximately 5.5% and Beroff will own
approximately 7.3% of Common Stock outstanding.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Jason K. Wadzinski 35 President/CEO/Director
John F. Sheffs 75 Director
Jason K. Wadzinski founded Edict in 1990 and has held the position of
President/CEO/Director since inception. Mr. Wadzinski is an Air Force veteran
and has held positions in information technology since 1982.
John F. Sheffs has been a Director of Edict since 1995. Mr. Sheffs was
President/CEO/Director and sole Shareholder of Electro Sales Associates, Inc.,
a manufacturers' representative company that sold various electronics products
to manufacturing companies located in the eastern half of the United States.
Mr. Sheffs has a lifetime of experience in management and entrepreneurship,
with special emphasis on sales and marketing.
No family relationship exists among directors and executive officers. No
egal proceedings occurred during the last five years that are material to an
evaluation of the ability or integrity of any director or executive officer.
ITEM 6. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Name and Title Year Annual Salary
<S> <C> <C>
Jason K. Wadzinski, 1999 $ 51,600
President/CEO
</TABLE>
Jason K. Wadzinski is the sole executive officer of the Company. No payments
classified as long-term compensation, other annual compensation and all other
compensation were made. The Company has no long-term incentive plans.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Twilight paid $120,000 and $109,000 to two of its former officers/directors
for services rendered during the years ended December 31, 1999 and 1998,
respectively. No transaction, proposed transaction or series of transactions
occurred in the last two years and through the date of this filing directly
or indirectly, between Edict and any director or executive officer that
exceeded $60,000 during the last two years.
Edict leases its office space from a shareholder of the Company. This space
is leased on a month to month basis for $3,000 per month. Lease payments made
under this arrangement were $34,800 and $21,800 in 1999 and 1998,
respectively. As part of this arrangement, Edict pays the real estate taxes
of the leased property. Payments made by Edict for taxes were $9,716 and
$6,033 in 1999 and 1998, respectively.
Pursuant to the Services Agreement and the Registration Rights Agreement, both
dated April 10, 2000 (the date of the Merger), the Company issued 400,000
shares of Common Stock to HFG. In return, HFG agreed to provide services to
the Company in support of the Merger and post-merger services relating to
public relations, investor relations and assisting with the Securities and
Exchange Commission ("SEC") filing requirements. On April 10, 2000, shares of
Common Stock were trading at approximately $1.06 per share.
Also on April 10, 2000, the Company entered into the Stock Purchase Agreement
with HFG and Beroff. The Stock Purchase Agreement requires HFG and Beroff, or
their designees, to each purchase 141,500 shares of Common Stock for $150,000
each on or before July 5, 2000 resulting in the issuance of 283,000 shares
of Common Stock for an aggregate consideration of $300,000 (approximately
$1.06 per share). This offering was made pursuant to Section 4(2) of the
Securities Act of 1933. HFG and Beroff have not yet purchased the additional
shares. The purchase date for the additional shares has been delayed by
agreement of the parties and shall occur within 5 days after the filing of
this Form 10SB.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.001 per share; with 619,173 issued and outstanding
at December 31, 1999, 5,378,173 issued and outstanding at April 10, 2000 (date
of Merger); and 5,661,173 to be issued and outstanding within 5 days following
the filing of this Form 10SB when 283,000 additional shares will be issued
pursuant to the Stock Purchase Agreement.
No preferred stock, debt securities or other securities of the Company are
authorized, issued or outstanding. The 400,000 shares of Common Stock issued
to HFG for services and the 283,000 shares of Common Stock to be issued to HFG
and Beroff, or their designees, pursuant to the Stock Purchase Agreement will
be subject to registration rights.
Part II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Market Information. Since May 4, 2000, the Company's Common Stock has traded
on the Pink Sheets. Prior to this, the Common Stock traded on the OTC
Bulletin Board under the symbol "TWIP".
The following table sets forth, for the periods indicated, the high and low
per share bid information for the Company's Common Stock on the OTC Bulletin
Board or the Pink Sheets, as applicable. Such high and low bid information
reflects inter-dealer quotes, without retail mark-up, mark down or commissions
and may not represent actual transactions.
<TABLE>
<CAPTION>
Date High Low
<S> <C> <C>
03/31/98 0.750 0.250
06/30/98 0.750 0.250
09/30/98 0.750 0.350
12/31/98 0.562 0.312
03/31/99 0.375 0.375
06/30/99 0.500 0.375
09/30/99 0.468 0.250
12/31/99 0.468 0.250
03/31/00 1.187 0.250
06/27/00 3.750 0.687
</TABLE>
The Company is filing this Form 10-SB for the purpose of registering the
Company's Common Stock under the Securities and Exchange Act of 1934 in order
to resume trading on the OTC Bulletin Board. Since the Company did not file a
Form 10-SB prior to May 4, 2000, it was delisted from the OTC Bulletin Board
and its Common Stock has been trading on the Pink Sheets. After the Company
has cleared all comments by the SEC on this FORM 10-SB, the Company will
register to have its shares listed on the OTC Bulletin Board.
Approximate Number of Holders. As of June 1, 2000, the Company had
approximately 313 registered holders of record of Common Stock. Some of those
registered holders are brokers who are holding shares for multiple clients in
street names. Accordingly, the Company believes the number of actual
Shareholders of Common Stock exceeds the number of registered holders of
record.
Dividends. The Company has never paid any cash or stock dividends. The
Company presently intends to reinvest earnings, if any, to fund the
development and expansion of the Company and therefore, does not anticipate
paying dividends on Common Stock in the foreseeable future. The declaration
of dividends will be at the discretion of the Board of Directors and will
depend upon the Company's earnings, financial position, general economic
conditions and other pertinent factors.
ITEM 2. LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings. The Company
may from time to time become a party to various legal proceedings arising in
the ordinary course of business.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
In November 1999, Edict engaged the services of Battelle & Battelle LLP for
the purpose of conducting financial audits of Edict. The Company intends to
engage the services of Battelle & Battelle LLP as the independent auditors for
the Company.
Prior to the Merger, Twilight engaged the services of Mark Bindiger, CPA, to
perform annual audits.
There are no disagreements between the Company and its auditors to report.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On April 10, 2000, pursuant to the Services Agreement and the Registration
Rights Agreement the Company issued 400,000 shares of Common Stock to HFG. In
return, HFG agreed to provide services to the Company in support of the Merger
and post-merger services relating to public relations, investor relations, and
assisting with SEC filing requirements. At the date of the Merger shares of
Common Stock were trading at approximately $1.06 per share.
On or before July 5, 2000, pursuant to the Stock Purchase Agreement, HFG and
Beroff, or their designees are required to each purchase 141,500 shares of
Common Stock for $150,000 resulting in the issuance of 283,000 shares of
Common Stock for an aggregate consideration of $300,000 (approximately $1.06
per share). This offering was made pursuant to Section 4(2) under the
Securities Act of 1933. HFG and Beroff have not yet purchased the additional
shares. The purchase date for the additional shares has been delayed by
agreement of the parties and shall occur within 5 days after the filing of this
Form 10SB.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's certificate of incorporation and bylaws contain provisions
indemnifying the directors and executive officers against liabilities. In the
certificate of incorporation, the Company has eliminated the personal
liability of the directors and executive officers to the Company and its
Stockholders for monetary damages for breach of their fiduciary duty,
including acts constituting gross negligence. However, in accordance with
Delaware law, a director will not be indemnified for a breach of its duty of
loyalty, acts or omissions not in good faith or involving intentional
misconduct or a knowing violation or any transaction from which the director
derived improper personal benefit.
In addition, the bylaws further provide that the Company may advance to the
directors and officers expenses incurred in connection with proceedings
against them for which they are entitled to indemnification. The Company has
also agreed to indemnify, defend, and hold harmless each of the officers and
directors to the fullest extent permissible by law with regard to any and all
loss, expense or liability, including payment and advancement of reasonable
attorney's fees, arising out of or relating to claims of any kind, whether
actual or threatened, relating in any way to their service to us. The Company
plans to memorialize these provisions in written agreements.
PART F/S
Financial Statements
(a) Historic Financial Statements
The following audited financial statements are filed as part of this report:
Independent Auditors' Report of Twilight Productions, Ltd.
Audited balance sheets of Twilight Productions, Ltd. as of December 31,
1999 and 1998, and audited statements of income and accumulated deficit,
and cash flows for the years ended December 31, 1999 and 1998.
Independent Auditors' Report of Edict Systems, Inc.
Audited balance sheets of Edict Systems, Inc. as of December 31, 1999 and
1998, and audited statements of income and accumulated deficit, and cash
flows for the years ended December 31, 1999, and 1998.
The following unaudited financial statements are filed as part of this report:
Unaudited balance sheets of Twilight Productions, Ltd. as of March 31,
2000 and 1999, and unaudited statements of income and accumulated
deficit, and cash flows for the three months ended March 31, 2000 and
1999.
Unaudited balance sheets of Edict Systems, Inc. as of March 31, 2000 and
1999, and unaudited statements of income and accumulated deficit, and
cash flows for the three months ended March 31, 2000 and 1999.
Unaudited consolidated balance sheets of Twilight Productions, Ltd. &
Subsidiary as of June 30, 2000 and 1999, and unaudited statements of
operations and retained earnings (deficit), and unaudited statements
of cash flows for the three months and six months ended
June 30, 2000 and 1999.
(b) Pro Forma Financial Statements
The following pro forma financial information is filed as part of this report:
Unaudited pro forma consolidated balance sheet which combines the audited
balance sheet of Twilight Productions, Ltd. as of December 31, 1999 and
the audited balance sheet of Edict Systems, Inc. as of December 31, 1999,
along with a description of the unaudited pro forma adjustments.
Unaudited pro forma consolidated statement of income which combines the
statement of income of Twilight Productions, Ltd. for the year ended
December 31, 1999 and the statement of operations of Edict Systems, Inc.
for the year ended December 31, 1999, along with a description of the
unaudited pro forma adjustments.
Unaudited pro forma consolidated balance sheet which combines the
unaudited balance sheet of Twilight Productions, Ltd. as of March 31,
2000 and the unaudited balance sheet of Edict Systems, Inc. as of March
31, 2000, along with a description of the unaudited pro forma adjustments.
Unaudited pro forma consolidated statement of income which combines the
statement of income of Twilight Productions, Ltd. for the quarter ended
March 31, 2000 and the statement of operations of Edict Systems, Inc. for
the quarter ended March 31, 2000, along with a description of the
unaudited pro forma adjustments.
The aforementioned pro forma financial statements were prepared under the
assumption that the merger of Twilight Productions, Ltd. and Edict
Systems, Inc. had been consummated as of January 1, 1999 for the December
31, 1999 financial statements and as of January 1, 2000 for the March 31,
2000 financial statements. These pro forma financial statements may not
be indicative of the financial position and results of operations that
actually would have been obtained if the merger had been in effect or
that may be obtained in the future. Such statements should be read in
conjunction with the Registrant's audited financial statements. The
assumptions and adjustments used are described in the accompanying notes
to the pro forma financial statements.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Twilight Productions, Ltd.
I have audited the accompanying balance sheets of Twilight Productions, Ltd.
as of December 31, 1999 and December 31, 1998, and the related statements of
income and accumulated deficit and cash flows for the two years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a
reasonable basis for my opinion.
In my opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999 and
December 31, 1998, and the results of its operations and its cash flows for
the two years then ended in conformity with generally accepted accounting
principles.
/s/ Mark Bindiger
February 10, 2000
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
BALANCE SHEETS
Year Ended December 31,
1999 1998
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 229,666 361,648
Film costs (Note 2) - 255,118
Other current assets - 625
Total current assets 229,666 617,391
PROPERTY AND EQUIPMENT
Office equipment 2,486 2,486
Less accumulated depreciation 2,486 2,153
Depreciated cost - 333
ORGANIZATION COSTS-NET - 26
Total assets 229,666 617,750
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common stock - .001 par value, 20,000,000
shares authorized, 619,173, shares issue 619 619
Additional paid-in capital 968,239 968,239
Accumulated deficit (739,192) (351,108)
Total shareholders' equity 229,666 617,750
Total liabilities and shareholders' equity 229,666 617,750
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
Year Ended December 31,
1999 1998
<S> <C> <C>
REVENUES
Interest income 11,831 19,025
Total revenues 11,831 19,025
OPERATING EXPENSES
General and administrative expenses 123,865 115,937
Write down of film costs to net realizable
value (Note 2) 276,050 -
Total operating expenses 399,915 115,937
NET LOSS (388,084) (96,912)
Accumulated deficit, beginning of year (351,108) (254,196)
ACCUMULATED DEFICIT, END OF YEAR (739,192) (351,108)
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
STATEMENTS OF CASH FLOWS
Year Ended
December 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (388,084) (96,912)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 359 363
Write down of film costs to net realizable
value 276,050
Increase (Decrease) in cash arising from
changes in assets and liabilities:
Film costs (20,932) (41,738)
Other current assets 625 300
Net cash used in operating activities (131,982) (137,987)
NET DECREASE IN CASH AND CASH EQUIVALENTS (131,982) (137,987)
Cash and cash equivalents, beginning of year 361,648 499,635
CASH AND CASH EQUIVALENTS, END OF YEAR 229,666 361,648
SUPPLEMENTAL DISCLOSURES
Interest paid - -
Taxes paid - -
The accompanying notes are an integral part of the financial statements.
</TABLE>
TWILIGHT PRODUCTIONS LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION
Twilight Productions Ltd. (The "Company") was incorporated in the State
of Delaware on March 9, 1994. The Company issued 72,700 shares of common
stock to its two officers and directors and other persons at a rate of $.06
per share ($4,362 in the aggregate). The Company is engaged in the business
of producing high quality, low budget, feature length motion pictures. Since
the Company's inception two films have been produced but not sold as of
February 10, 2000.Management has written off the value of both films to zero
even though they anticipate in the future that both films may be profitable.
In 1994 the Company raised an additional $20,496 pursuant to an offering
of 4,000 units at $6.00 a unit. 3,416 of the units were sold. Each unit
consisted of one share of common ($.001 par value) and 40 class A warrants.
Each class A warrant entitled the holder to purchase one additional share at
$5.25 per share for a period of nine months following the offering. On
February 17, 1995 the exercise price was reduced to $2.50 a share.In April
1995 a second stock placement offering was done consisting of 4,000 units at
$9.25 a unit. Each unit consisted of one share of common ($.001) and 50
class B warrants. 4,000 units were sold. Each class B warrant entitled the
holder to purchase one additional share at a price of $3.00 per share for a
period of four months following the offering.
In September 1995 another stock placement was done whereby 120,000 shares
of stock were sold to related parties at the stocks fair market value at that
date ($.25 a share).
In January 1996 option to purchase 200,000 shares of common stock was
granted to two officers/directors. In December 1996 the officers/directors
exercised their stock options to purchase 117,857 shares of stock at $.28 a
share.
In 1998 the Company increased its authorized number of shares to
20,000,000.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEFERRED OFFERING COSTS
All offering costs incurred by the Company in connection with the
offerings have been charged to additional paid in capital.
ORGANIZATIONAL COSTS
Organizational costs are expensed over a sixty month period from the
commencement of operations.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments
with original maturities of three months or less.
REVENUE RECOGNITION
Revenue from theatrical licensing agreements is recognized when the film
has been delivered and becomes contractually available. The primary market is
foreign theatrical releases.
ACCOUNTING FOR FILM COSTS
Inventory of film costs consists of acquisition costs, production costs
and certain exploitation costs and are stated at the lower of cost or estimate
net realizable value.
In accordance with the provisions of Financial Accounting Standards No.
53, film costs are amortized on the ratio that the revenue earned for the year
bears to management's estimate of the total gross revenue to be realized.
Such estimates are revised periodically and estimated losses, if any, are
provided for in full.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company at present uses the offices of its President for pre and post
production development at no cost to the Company. In addition, the Company
paid $120,000 and $109,000 to two of its officers/directors for services
rendered during the years ended December 31, 1999 and 1998, respectively.
NOTE 4 - INCOME TAXES
No current provision for income taxes is made due to net operating
osses. The Company currently has a substantial net operating loss
carryforward. The Company has recorded a 100% valuation allowance against net
deferred tax assets due to uncertainty of their ultimate recognition.
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
BALANCE SHEET
31-Dec
1999 1998
<S> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 3,420 16,548
Accounts receivable, net 122,169 142,295
Refundable income tax 20,472
Other 12,017
Total current assets 137,606 179,315
SOFTWARE DEVELOPMENT COSTS, net 204,542 135,807
PROPERTY AND EQUIPMENT
Office equipment 147,838 106,331
Less accumulated depreciation 98,325 78,299
Depreciated cost 49,513 28,032
Total assets 391,661 343,154
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES
Bank notes payable 115,894 21,288
Accounts payable 63,417 70,593
Accrued expenses 19,108 8,983
Deferred income taxes 905 3,782
Deferred revenue 168,724 168,203
Total current liabilities 368,048 272,849
SHAREHOLDERS' EQUITY
Common stock 2,000 2,000
Treasury stock (75,000) (75,000)
Retained earnings 96,613 143,305
Total shareholders' equity 23,613 70,305
Total liabilities and shareholders'
Equity 391,661 343,154
The accompanying notes are an integral part of the financial
statements.</TABLE>
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
Year Ended December 31
1999 1998
<S> <C> <C> <C>
REVENUES
Product sales and license fees 815,197 675,056
Other income 9,246 15,012
Total revenues 824,443 690,068
OPERATING EXPENSES
Cost of sales 20,877 56,768
Salaries and benefits 572,627 476,689
General and administrative expenses 187,409 127,388
Depreciation 20,026 11,886
Amortization 57,217 14,459
Bad debt expense 5,000 15,000
Interest, net 9,236 -4,399
Miscellaneous 1,560 1,595
Total operating expenses 873,952 699,386
LOSS BEFORE TAXES -49,509 -9,318
Income tax benefits -2,817 -10,740
NET (LOSS) INCOME -46,692 1,422
Retained earnings, beginning of year 143,305 141,883
RETAINED EARNINGS, END OF YEAR 96,613 143,305
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31
1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income (46,692) 1,422
Adjustments to reconcile net (loss) income
to cash provided by operating activities:
Depreciation 20,026 11,886
Amortization 57,217 14,459
Provision for deferred income taxes
(benefit) (2,877) 9,674
Increase (decrease) in cash arising from
changes in assets and liabilities:
Accounts receivable 20,126 (8,078)
Other assets 8,455 (20,438)
Accounts payable (7,176) 42,142
Accrued expenses 10,125 (33,812)
Deferred revenue 521 76,108
Net cash provided by operating activities 59,725 93,363
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (41,507) (19,864)
Software costs capitalized (125,952) (128,486)
Net cash used in investing activities (167,459) (148,350)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock - (50,000)
Borrowings on bank line of credit 164,033 25,000
Payments on bank line of credit (69,427) (3,712)
Net cash provided by (used in) financing
activities 94,606 (28,712)
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,128) (83,699)
Cash and cash equivalents, beginning of
Year 16,548 100,247
CASH AND CASH EQUIVALENTS, END OF YEAR 3,420 16,548
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ITEMS
Income taxes paid, net of refunds - 3,227
Interest paid 4,320 1,498
The accompanying notes are an integral part of the financial
statements.</TABLE>
EDICT SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Edict Systems, Inc. develops and markets
electronic data interchange and electronic commerce software products and
services that enable its customers to send and receive business documents
electronically in standard and proprietary formats. Customers consist of
businesses across a number of industries throughout the United States.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company classifies as cash equivalents all highly
liquid investments with original maturities of three months or less.
ACCOUNTS RECEIVABLE - Accounts receivable are reported net of the
allowance for uncollectible accounts. The allowance for uncollectible
accounts was $25,000 and $20,000 in 1999 and 1998,respectively.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
Costs of normal maintenance and repairs are charged to expense as incurred.
Impairment of asset value is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Depreciation is provided using accelerated methods for financial
reporting purposes at rates based on useful lives of five to seven years.
Depreciation expense was $20,026 and $11,886 in 1999 and 1998, respectively.
REVENUE RECOGNITION - Revenue from product sales are recorded when the
product is shipped. Ongoing license fees are recognized ratably over the
contract period.
DEFERRED INCOME TAXES - Deferred income taxes are provided for temporary
differences in recognition of assets and liabilities for financial statements
and for income tax purposes.In addition, deferred income taxes are provided to
recognize future tax benefits of tax credits and net operating loss carry-
forwards, to the extent realization of such benefits is more likely than not.
NOTE 2 - SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs that are
amortized by the straight-line method over the remaining estimated economic
lives of the software product, which is generally estimated to be three years.
Capitalized software costs amounted to $287,108 and $161,156 at December 31,
1999 and 1998, respectively and the related accumulated amortization was
$82,566 and $25,349, respectively.
Software costs consists of the following:
<TABLE>
<CAPTION>
Bar Code
Label Formula One? Enterprise
Module For Windows EC? Total
<S> <C> <C> <C> <C>
Balance as of
December 31, 1997 $21,780 $21,780
Costs incurred 128,486 128,486
1998 amortization (10,890) (3,569) (14,459)
Balance as of
December 31, 1998 10,890 124,917 - 135,807
Costs 125,952 125,952
1999 amortization (10,890) (42,829) (3,498) (57,217)
Balance as of
December 31, 1999 $ $ 82,088 $122,454 $204,542
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company leases its office space from a Shareholder of the Company.
This space is leased on a month to month basis for 3,000 per month. Lease
payments made under this arrangement were 34,800 and $21,800 in 1999 and 1998,
respectively. As part of this arrangement, the Company pays the real estate
taxes of the leased property. Payments made by the Company for taxes were
$9,716 and $6,033 in 1999 and 1998, respectively.
NOTE 4 - BANK NOTES PAYABLE
In 1997 the Company obtained a $35,000 line of credit from Star Bank.
Outstanding borrowings accrue interest at the Bank's prime rate plus two
percent, 10.5% as of December 31, 1999. Outstanding borrowings under this
agreement were $34,794 and $21,288 at December 31, 1999 and 1998
respectively. The majority Shareholder has personally guaranteed this line
of credit. This line of credit is collateralized by substantially all
business assets of the Company.
In 1999 the Company obtained an $80,000 line of credit from Huntington
Bank. Outstanding borrowings accrue interest at the Bank's prime rate plus one-
half of one percent. During 1999 this line of credit was converted into a
$100,000 commercial note. Outstanding borrowings under this agreement were
$81,100 at December 31, 1999. The majority Shareholder has personally
guaranteed this line of credit. This loan is collateralized by substantially
all business assets of the Company.
NOTE 5 - SHAREHOLDERS' EQUITY
The Company has one class of Common Stock with no par value. As of
December 31, 1998 and 1999 the Company had 1,000 authorized shares of Common
Stock with 100 shares issued and 56 shares outstanding.
During 1998 the Company repurchased 44 shares of its stock for $75,000
which included a forgiveness of indebtedness from the former Shareholder of
$25,000. Treasury stock is accounted for using the cost method.
In connection with the purchase of the stock, the Company entered into a
consulting agreement with the former Shareholder. In addition, the former
Shareholder could receive additional consideration from the Company if
substantially all of its assets are sold within predetermined timeframes from
the stock redemption date. With the passage of time through December 31,
1999, the Company's potential liability is limited to $50,000 and this
liability is eliminated if the Company's assets are sold after May 14, 2000.
NOTE 6 - PROFIT SHARING PLAN
The Company established a profit sharing and 401(k) plan Covering
substantially all employees in 1997. The Company may make annual
discretionary contributions to the plan based on participants' contributions.
The Company's contribution to this plan was $1,018 in 1998, and $-0- for 1999.
NOTE 7 - INCOME TAX EXPENSES (BENEFITS)
Income tax expenses (benefits) are comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
<S> <C> <C> <C>
Taxes current payable (refundable):
Federal $ - ($20,472)
State and local 60 58
60 -20,414
Deferred income taxes -2,877 9,674
Total income tax benefits ($2,817) ($10,740)
</TABLE>
At December 31, 1999 and 1998, deferred income tax liabilities result from
temporary differences in the recognition of income and expense for tax and
financial reporting purposes. These differences consist principally of the
difference between accrual basis accounting for financial reporting purposes
and the cash basis for tax purposes.
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
BALANCE SHEET
UNAUDITED)
March 31,
2000 1999
<S> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 216,151 329,880
Film costs - 259,763
Interest receivable - 625
Total current assets 216,151 590,268
PROPERTY AND EQUIPMENT
Office equipment 2,486 2,486
Accumulated depreciation 2,486 2,154
Depreciated cost - 332
ORGANIZATION COSTS - NET - 26
Total assets 216,151 590,626
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common stock 619 619
Additional paid-in capital 968,239 968,239
Accumulated deficit -752,707 -378,232
Total shareholders' equity 216,151 590,626
Total liabilities and shareholders'
equity 216,151 590,626
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
(UNAUDITED)
Quarter Ended
March 31,
<S> <C> <C> <C>
2000 1999
REVENUES
Interest income 1,632 3,980
Total revenues 1,632 3,980
OPERATING EXPENSES
General and administrative expenses 15,147 31,104
Total operating expenses 15,147 31,104
NET LOSS (13,515) (27,124)
Accumulated deficit, beginning of (739,192) (351,108)
quarter
ACCUMULATED DEFICIT, END OF QUARTER (752,707) (378,232)
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Quarter Ended
March 31,
2000 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (13,515) (27,124)
Adjustments to reconcile net loss to cash
used in operating activities:
Decrease in cash arising from
changes in assets and liabilities:
Film costs - (4,644)
Net cash used in operating activities (13,515) (31,768)
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,515) (31,768)
Cash and cash equivalents, beginning of
quarter 229,666 361,648
CASH AND CASH EQUIVALENTS, END OF QUARTER 216,151 329,880
The accompanying notes are an integral part of the financial statements.
</TABLE>
TWILIGHT PRODUCTIONS, LTD.
NOTES TO FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Twilight Productions, Ltd. Develops movies for
resale. During the fourth quarter of 1999, the Company charged to expense
$276,050, the entire cost of two movies the Company had produced for resale.
On April 10, 2000 the Company merged with EDICT Systems, Inc. (See also
Note 3).
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company classifies as cash equivalents
all highly liquid investments with original maturities of three months or less.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company uses the offices of its President at no cost to the Company.
The Company paid approximately $15,000 and $30,000 to two officers/directors
for services rendered during the quarters ended March 31, 2000 and 1999,
respectively.
NOTE 3 - SHAREHOLDERS' EQUITY AND SUBSEQUENT EVENT
The Company had 20,000,000 authorized shares of common stock with 619,173
shares issued and outstanding as of March 31, 2000 and 1999, respectively.
On April 10, 2000, Edict Systems, Inc. entered into a merger agreement
with Twilight. The merger agreement provides for a business combination
between Twilight and Edict in which Edict will become a wholly owned
subsidiary of Twilight. Under the terms of the merger, Edict's issued and
outstanding shares were exchanged for 4,359,000 Twilight shares. The merger
is intended to qualify as a pooling of interest for accounting purposes and as
a tax free reorganization for federal income tax purposes.
In connection with the merger described above, Twilight assigned all
rights, title and interest in and to the two films it had produced to Chaverim
Productions, Ltd. (a related party) in exchange for Twilight's release from
any and all obligations and liabilities arising from the production of the
films.
As part of the merger, Twilight entered into a service agreement with HFG
whereby HFG would provide services to Twilight in support of the Merger and
post-merger services relating to public relations,investor relations, and
assisting with regulatory filing requirements. HFG will be compensated for
these services by the issuance of 400,000 shares of Twilight's common stock.
Subsequent to the issuance of shares to Edict and HFG, as described above, the
former Edict shareholders own approximately 81% of Twilight's issued and
outstanding shares. Immediately following the merger, the sole business of
Twilight consisted of the business of Edict.
Also on April 10, 2000, Twilight entered into a stock purchase agreement
with HFG and Art Howard Beroff ("Beroff"), a former director and officer of
Twilight prior to the merger with Edict. The stock purchase agreement
requires HFG and Beroff, or their designees, to each purchase 141,500 shares
of Twilight for $150,000 each on or before July 5, 2000 resulting in
Twilight's issuance of 283,000 shares of common stock for an aggregate
consideration of $300,000 (approximately $1.06 per share). This offering was
made pursuant to Section 4(2) of the Securities Act of 1933. HFG and Beroff
have not as yet met their obligation to purchase the additional shares. The
date of purchase has been delayed by agreement of the parties and shall occur
within 5 days after the filing of a Form 10SB by Twilight.
NOTE 4 - INCOME TAXES
No current provision for income taxes is made due to net operating
losses. The Company currently has a substantial net operating loss carry-
forward. The Company has recorded a 100% valuation allowance against net
deferred tax assets due to uncertainty of their ultimate recognition.
Furthermore, the merger described in Note 3 will likely place additional
significant limitations on the ultimate utilization of net operating loss
carryforwards.
INDEPENDENT AUDITORS' REPORT
Edict Systems, Inc.
Dayton, Ohio
We have audited the accompanying balance sheets of Edict Systems, Inc. as of
December 31, 1999, 1998, and 1997 and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edict Systems, Inc. as of
December 31, 1999, 1998, and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Battelle & Battelle LLP
March 15, 2000
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
BALANCE SHEET
(UNAUDITED)
March 31,
2000 1999
<S> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 13,724 26,168
Accounts receivable, net 108,052 79,705
Refundable income tax 11,844 12,640
Deferred income taxes 7,754 7,885
Prepaid expenses 9,811 3,000
Total current assets 151,185 129,398
SOFTWARE DEVELOPMENT COSTS, net 183,339 134,703
PROPERTY AND EQUIPMENT
Office equipment 148,603 117,464
Less accumulated depreciation 103,425 83,305
Depreciated cost 45,178 34,159
Total assets 379,702 298,260
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable 130,341 -
Other note payable 50,000 -
Accounts payable 72,897 53,831
Accrued expenses 37,329 19,413
Deferred revenue 147,025 169,954
Total current liabilities 437,592 243,198
(ACCUMULATED DEFICIT) SHAREHOLDERS' EQUITY
Common stock 2,000 2,000
Treasury stock (75,000) (75,000)
Retained earnings 15,110 128,062
Total (accumulated deficit)
shareholders' equity (57,890) 55,062
Total liabilities and (accumulated
deficit) shareholders' equity 379,702 298,260
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Quarter Ended
31-Mar
2000 1999
<S> <C> <C> <C>
REVENUES
Product sales and license fees 199,043 167,133
Other income 580 5,819
Total revenues 199,623 172,952
OPERATING EXPENSES
Cost of sales 9,025 7,779
Salaries and benefits 211,027 126,442
General and administrative expenses 39,408 33,492
Depreciation 5,100 5,006
Amortization 21,203 13,429
Bad debt expense 10,000 5,000
Interest 5,866 882
Total operating expenses 301,629 192,030
LOSS BEFORE TAXES (102,006) (19,078)
INCOME TAXES (BENEFIT) PROVISION
Current (11,844) 7,832
Deferred (8,659) (11,667)
Income tax benefit (20,503) (3,835)
NET LOSS (81,503) (15,243)
Retained earnings, beginning of quarter 96,613 143,305
RETAINED EARNINGS, END OF QUARTER 15,110 128,062
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
EDICT SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
Quarter Ended
March 31,
2000 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (81,503) (15,243)
Adjustments to reconcile net loss to
cash used in provided by operating
activities:
Depreciation 5,100 5,006
Amortization 21,203 13,429
Deferred income tax benefit (8,659) (11,667)
Increase (decrease) in cash arising from
changes in assets and liabilities:
Accounts receivable 14,117 62,590
Other assets 2,206 (3,000)
Accounts payable 9,480 (16,762)
(Refundable) provision for current income (11,844) 7,832
Accrued expenses 18,221 10,431
Deferred revenue (21,699) 1,751
Net cash (used in) provided by operating (53,378) 54,367
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (765) (11,133)
Software costs capitalized - (12,326)
Net cash used in investing activities -765 (23,459)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on bank line of credit and
Other note payable 65,612 -
Payments on bank line of credit (1,165) (21,288)
Net cash provided by (used in) financing 64,447 (21,288)
activities
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,304 9,620
Cash and cash equivalents, beginning of q 3,420 16,548
CASH AND CASH EQUIVALENTS, END OF QUARTER 13,724 26,168
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ITEMS
Interest paid 4,199 882
The accompanying notes are an integral part of the financial statements.
</TABLE>
EDICT SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Edict Systems, Inc. develops and markets
electronic data interchange and electronic commerce software products and
services that enable its customers to send and receive business documents
electronically in a standard format. Customers consist of businesses across a
number of industries throughout the United States.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company classifies as cash equivalents all highly
liquid investments with original maturities of three months or less.
ACCOUNTS RECEIVABLE - Accounts receivable are reported net of the
allowance for uncollectible accounts. The allowance for uncollectible
accounts was $40,000 and $25,000 at March 31, 2000 and 1999 respectively.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
Costs of normal maintenance and repairs are charged to expense as incurred.
Impairment of asset value is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Depreciation is provided using accelerated methods for financial
reporting purposes at rates based on useful lives of five to seven years.
Depreciation expense was $5,100 and $5,007 in the quarters ended March 31,
2000 and 1999 respectively.
REVENUE RECOGNITION - Revenue from product sales are recorded when the
product is shipped and the services are performed. Ongoing license fees are
recognized ratably over the contract period.
DEFERRED INCOME TAXES - Deferred income taxes are provided for temporary
differences in recognition of assets and liabilities for financial statements
and for income tax purposes. In addition, deferred income taxes are provided
to recognize future tax benefits of tax credits and net operating loss
carryforwards, to the extent realization of such benefits is more likely than
not.
NOTE 2 - SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs that are
amortized by the straight-line method over the remaining estimated economic
lives of the software product, which is generally estimated to be three years.
Capitalized software costs amounted to $287,108 and $173,482 at March 31,
2000 and March 31, 1999, respectively and the related accumulated amortization
was $103,769 and $38,779, respectively.
Software costs consists of the following:
<TABLE>
<CAPTION>
Bar Code
Label Formula One Enterprise
Matrix For Windows EC Total
<S> <C> <C> <C> <C>
Quarter Ended
March 31, 2000
Costs capitalized:
Balance as of December 31, 1999 $32,670 $128,486 $125,952 $287,108
Costs incurred - - - -
Balance as of March 31, 2000 $32,670 $128,486 $125,952 $287,108
Accumulated amortization:
Balance as of December 31,1999 $32,670 $ 46,398 $ 3,498 $ 82,566
Amortization - 10,707 10,496 21,203
Balance as of March 31, 2000 $32,670 $ 57,105 $ 13,994 $103,769
Net:
Balance as of December 1999 $ - $ 82,088 $122,454 $204,542
Costs incurred - - - -
Amortization - (10,707) (10,496) (21,203)
Balance as of March 31, 2000 $ - $ 71,381 $111,958 $183,339
Quarter Ended March 31, 1999
Costs capitalized:
Balance as of December 31, 1998 $32,670 $128,486 $ - $161,156
Costs incurred - - 12,326 12,326
Balance as of March 31, 1999 $32,670 $128,486 $ 12,326 $173,482
Accumulated amortization:
Balance as of December 31, $21,780 $ 3,569 $ - $ 25,349
Amortization 2,723 10,707 - 13,430
Balance as of March 31, 1999 $24,503 $ 14,276 $ - $ 38,779
Net:
Balance as of December 1998 $10,890 $124,916 $ - $135,806
Costs incurred - - 12,326 12,326
Amortization (2,722) (10,707) - (13,429)
Balance as of March 31, 1999 $ 8,168 $114,209 $ 12,326 $134,703
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company leases its office space from a shareholder of the Company.
This space is leased on a month to month basis for 3,000 per month. Lease
payments made under this arrangement were $9,000 and $7,880, in the quarters
ended March 31, 2000 and 1999 respectively. As part of this arrangement, the
Company pays the real estate taxes of the leased property. Payments made by
the Company for taxes were $1,677 and $1,637 in the quarters ended March 31,
2000 and 1999 respectively.
NOTE 4 - BANK NOTES PAYABLE AND OTHER NOTE PAYABLE
In 1997 the Company obtained a $35,000 line of credit from Star Bank.
Outstanding borrowings accrue interest at the Bank's prime rate plus two
percent, 10.75% as of March 31, 2000. Outstanding borrowings under this
agreement were $33,629 and $0 at March 31, 2000 and 1999, respectively. The
majority shareholder has personally guaranteed this line of credit. This line
of credit is collateralized by substantially all business assets of the Company.
In 1999 the Company obtained an $80,000 line of credit from Huntington
Bank. Outstanding borrowings accrue interest at the Bank's prime rate plus one-
half of one percent, 9.25% at March 31, 2000. During 1999 this line of credit
was converted into a $100,000 commercial note. Outstanding borrowings under
this agreement were $96,712 and $0 at March 31, 2000 and 1999, respectively.
The majority shareholder has personally guaranteed this line of credit. This
loan is collateralized by substantially all business assets of the Company.
On February 2, 2000 the Company borrowed $50,000 from an unrelated
corporation. Outstanding borrowings accrue interest at the rate of 10% per
year. The note and interest are due August 3, 2000 and is collateralized by
property owned by the Company's President.
NOTE 5 - SHAREHOLDERS' EQUITY AND SUBSEQUENT EVENT
The Company had 1,000 authorized shares of common stock with 100 shares
issued and 56 shares outstanding as of March 31, 2000 and 1999, respectively.
Treasury stock is accounted for using the cost method.
On April 10, 2000, the Company entered into a merger agreement with
Twilight Productions, Ltd. The merger agreement provides for a business
combination between Twilight and the Company in which Edict will become a
wholly owned subsidiary of Twilight. Under the terms of the merger, the
Company's issued and outstanding shares were exchanged for 4,359,000 Twilight
shares. The merger is intended to qualify as a pooling of interest for
accounting purposes and as a tax free reorganization for federal income tax
purposes.
In connection with the merger described above, Twilight assigned all
rights, title and interest in and to the two films it had produced to Chaverim
Productions, Ltd. , an entity owned by the officers and directors of Twilight,
in exchange for Twilight's release from any and all obligations and
liabilities arising from the production of the films.
As part of the merger, Twilight entered into a service agreement with HFG
whereby HFG agreed to provide services to Twilight in support of the Merger
and post-merger services relating to public relations, investor relations, and
assisting with regulatory filing requirements. HFG will be compensated for
these services by the issuance of 400,000 shares of Twilight's common stock.
Subsequent to the issuance of shares to Edict and HFG, as described above, the
former Edict shareholders own approximately 81% of Twilight's issued and
outstanding shares. Immediately following the merger, the sole business of
Twilight consisted of the business of Edict.
Also on April 10, 2000, Twilight entered into a stock purchase agreement
with HFG and Art Howard Beroff ("Beroff"), a former director and officer of
Twilight prior to the merger with Edict. The stock purchase agreement
requires HFG and Beroff, or their designees, to each purchase 141,500 shares
of Twilight for $150,000 each on or before July 5, 2000 resulting in
Twilight's issuance of 283,000 shares of common stock for an aggregate
consideration of $300,000 (approximately $1.06 per share). This offering as
made pursuant to Rule 504 under the Securities Act. HFG and Beroff have not
as yet met their obligation to purchase the additional shares. The date of
purchase has been delayed by agreement of the parties and shall occur within 5
days after the filing of a Form 10SB by Twilight.
NOTE 6 - PROFIT SHARING PLAN
In 1997 the Company established a profit sharing and 401(k) plan covering
substantially all employees. The Company may make annual discretionary
contributions to the plan based on participants' contributions. The Company
made no contributions to the plan in the quarters ended March 31, 2000 and
1999 respectively.
NOTE 7 - INCOME TAX EXPENSES (BENEFIT)
Income tax expenses (benefits) are comprised of the following:
<TABLE>
<CAPTION>
Quarter Ended March 31,
2000 1999
<S> <C> <C> <C>
Taxes current payable (refundable):
Federal $ (8,839) $ 5,845
State and local (3,005) 1,987
(11,844) 7,832
Deferred income taxes (8,659) (11,667)
Total income tax benefits $ (20,503) $(3,835)
</TABLE>
At March 31, 2000 and March 31, 1999, deferred income tax assets and
liabilities result from temporary differences in the recognition of income and
expense for tax and financial reporting purposes. These differences consist
principally of the difference between accrual basis accounting for reporting
purposes and the cash basis for tax purposes.
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD. & SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
30-June,
2000 1999
<S> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 67,211 318,157
Accounts receivable, net 153,544 119,160
Refundable income tax 2,651 21,350
Film costs - 263,849
Deferred income taxes 81,100 1,452
Prepaid expenses 3,108 7,630
Total current assets 307,614 731,598
SOFTWARE DEVELOPMENT COSTS, net 162,134 136,785
PROPERTY AND EQUIPMENT
Office equipment 161,503 129,173
Less accumulated depreciation 109,379 90,465
Depreciated cost 52,124 38,708
Total assets 521,872 907,091
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable 131,006 41,032
Other note payable 50,000 -
Accounts payable 89,532 36,978
Accrued expenses 27,580 36,994
Deferred revenue 213,444 182,667
Total current liabilities 511,562 297,671
SHAREHOLDERS' EQUITY
Common stock 5,378 5,378
Paid-in capital 1,190,480 890,480
Stock subscriptions receivable (300,000)
Retained earnings (deficit) (885,548) (286,438)
Total shareholders' equity 10,310 609,420
Total liabilities and
shareholders' equity 521,872 907,091
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD. & SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
Three Months Ended Six Months Ended
30-June 30-June
2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Product sales and license fees 165,136 189,591 364,179 356,724
Other income 6,210 4,000 8,422 13,799
Total revenues 171,346 193,591 372,601 370,523
OPERATING EXPENSES
Cost of sales 5,377 1,070 14,402 8,849
Salaries and benefits 215,771 137,177 426,798 263,619
General and administration 104,138 74,042 158,693 138,638
Depreciation 5,954 5,007 11,054 10,013
Amortization 21,203 13,430 42,406 26,859
Bad debt expense 25,000 - 35,000 5,000
Interest 6,007 1,410 11,873 2,292
Total operating expenses 383,450 232,136 700,226 455,270
LOSS BEFORE TAXES (212,104) (38,545) (327,625) (84,747)
Income tax benefits (64,153) (2,277) (84,656) (6,112)
NET LOSS (147,951) (36,268) (242,969) (78,635)
Retained (deficit) earnings,
beginning of period (737,597) (250,170) (642,579) (207,803)
RETAINED (DEFICIT) EARNINGS,
END OF PERIOD (885,548) (286,438) (885,548) (286,438)
LOSS PER SHARE
Basic (0.03) (0.01) (0.05) (0.01)
Diluted (0.03) (0.01) (0.04) (0.01)
Average Shares Outstanding
Basic 5,378,173 5,378,173 5,378,173 5,378,173
Diluted 5,661,173 5,661,173 5,661,173 5,661,173
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWILIGHT PRODUCTIONS, LTD. & SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
30-June
2000 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (242,969) (78,635)
Adjustments to reconcile net loss to
cash used in operating
activities:
Depreciation 11,054 10,013
Amortization 42,406 26,859
Deferred income tax benefit (84,656) (6,112)
Increase (decrease) in cash arising from
changes in assets and liabilities:
Accounts receivable (31,374) 23,760
Film costs (8,731)
Other assets 8,909 (7,604)
Accounts payable 26,115 (33,615)
Accrued expenses 8,472 28,011
Deferred revenue 44,720 14,464
Net cash used in operating activities (217,323) (31,590)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (13,664) (20,356)
Software costs capitalized - (27,837)
Net cash used in investing activities (13,664) (48,193)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on bank line of credit and
Other note payable 67,358 41,856
Payments on bank line of credit (2,246) (22,112)
Net cash provided by financing
activities 65,112 19,744
NET DECREASE IN CASH AND CASH EQUIVALENTS (165,875) (60,039)
Cash and cash equivalents, beginning of
period 233,086 378,196
CASH AND CASH EQUIVALENTS, END OF PERIOD 67,211 318,157
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ITEMS
Interest paid 9,873 2,292
The accompanying notes are an integral part of the financial statements.
</TABLE>
TWILIGHT PRODUCTIONS, LTD. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Twilight Productions, Ltd. through its wholly-owned
subsidiary, Edict Systems, Inc., develops and markets electronic data
interchange and electronic commerce software products and services that enable
its customers to send and receive business documents electronically in a
standard format. Customers consist of businesses across a number of
industries throughout the United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Twilight Productions, Ltd. and its wholly-owned subsidiary,
Edict Systems, Inc. Intercompany accounts and transactions are eliminated in
consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company classifies as cash equivalents all highly
liquid investments with original maturities of three months or less.
ACCOUNTS RECEIVABLE - Accounts receivable are reported net of the
allowance for uncollectible accounts. The allowance for uncollectible
accounts was $60,000 and $25,000 at June 30, 2000 and 1999 respectively.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost.
Costs of normal maintenance and repairs are charged to expense as incurred.
Impairment of asset value is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Depreciation is provided using accelerated methods for financial
reporting purposes at rates based on useful lives of five to seven years.
Depreciation expense was $11,054 and $10,013 in the six months ended June 30,
2000 and 1999 respectively.
REVENUE RECOGNITION - Revenue from product sales are recorded when the
product is shipped and the services are performed. Ongoing license fees are
recognized ratably over the contract period.
DEFERRED INCOME TAXES - Deferred income taxes are provided for temporary
differences in recognition of assets and liabilities for financial statements
and for income tax purposes. In addition, deferred income taxes are provided
to recognize future tax benefits of tax credits and net operating loss
carryforwards, to the extent realization of such benefits is more likely than
not.
NOTE 2 - BUSINESS COMBINATIONS
On April 10, 2000, Twilight Productions, Ltd. (Twilight) and Edict
Systems, Inc. (Edict) entered into a merger agreement. The merger agreement
provides for a business combination between Twilight and Edict in which Edict
became a wholly owned subsidiary of Twilight. Under the terms of the merger,
Edict's issued and outstanding shares were exchanged for 4,359,000 Twilight's
shares.
In connection with the merger described above, Twilight assigned all
rights, title and interest in and to the two films it had produced to Chaverim
Productions, Ltd., an entity owned by the former officers and directors of
Twilight, in exchange for Twilight's release from any and all obligations
and liabilities arising from the production of the films.
As part of the merger, Twilight entered into an agreement with HFG, a
financial services provider, whereby HFG agreed to provide services to
Twilight in support of the merger and post-merger services relating to public
relations, investor relations, and assisting with regulatory filing
requirements. HFG was compensated for these services by the issuance of
400,000 shares of Twilight's common stock.
Also on April 10, 2000, Twilight entered into an agreement with HFG and
Art Howard Beroff ("Beroff"), a former director and officer of Twilight prior
to the merger with Edict. The stock purchase agreement requires HFG and
Beroff, or their designees, to each purchase 141,500 shares of Twilight for
$150,000 each resulting in Twilight's issuance of 283,000 shares of common
stock for an aggregate consideration of $300,000 (approximately $1.06 per
share). This offering was made pursuant to Rule 504 under the Securities
Act.
The merger has been accounted for as a pooling of interests, and
accordingly all financial statements for periods prior to the effective date
of the merger have been restated to include the combined results of
operations, financial position and cash flows of Twilight and Edict.
For Federal income tax purposes, the merger is expected
to be accounted for as a tax free reorganization.
The following information presents certain income statement data of the
separate companies for the periods preceding the merger:
<TABLE>
<CAPTION>
March 31, 2000
1999 1998 (Unaudited)
<S> <C> <C> <C>
Net sales
Edict $815,197 $675,056 $199,043
Twilight 0 0 0
Total $815,197 $675,056 $199,043
Net income (loss)
Edict $ (46,692) $ 1,422 $(81,503)
Twilight (388,084) (96,912) (13,515)
Total $(434,776) $(95,490) $(95,018)
</TABLE>
NOTE 3 - SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain software development costs that are
amortized by the straight-line method over the remaining estimated economic
lives of the software product, which is generally estimated to be three years.
Capitalized software costs amounted to $287,108 and $188,994 at June 30,
2000 and June 30, 1999, respectively, and the related accumulated amortization
was $124,972 and $52,208, respectively.
Software costs consists of the following:
<TABLE>
<CAPTION>
Bar Code
Label Formula One Enterprise
Matrix For Windows EC Total
<S> <C> <C> <C> <C>
Six Months Ended
June 30, 2000
Costs capitalized:
Balance as of December 31, 1999 $32,670 $128,486 $125,952 $287,108
Costs incurred - - - -
Balance as of June 30, 2000 $32,670 $128,486 $125,952 $287,108
Accumulated amortization:
Balance as of December 31,1999 $32,670 $ 46,398 $ 3,498 $ 82,566
Amortization - 21,414 20,992 42,406
Balance as of June 30, 2000 $32,670 $ 67,812 $ 24,490 $124,972
Net:
Balance as of December 1999 $ - $ 82,088 $122,454 $204,542
Costs incurred - - - -
Amortization - (21,414) (20,992) (42,406)
Balance as of June 30, 2000 $ - $ 60,674 $101,462 $162,136
Six Months Ended
June 30, 1999
Costs capitalized:
Balance as of December 31, 1998 $32,670 $128,486 $ - $161,156
Costs incurred - - 27,838 27,838
Balance as of June 30, 1999 $32,670 $128,486 $ 27,838 $188,994
Accumulated amortization:
Balance as of December 31, 1998 $21,780 $ 3,569 $ - $ 25,349
Amortization 5,445 21,414 - 26,859
Balance as of June 30, 1999 $27,225 $ 24,983 $ - $ 52,208
Net:
Balance as of December 1998 $10,890 $124,916 $ - $135,806
Costs incurred - - 27,838 27,838
Amortization (5,445) (21,414) - (26,859)
Balance as of June 30, 1999 $ 5,445 $103,502 $ 27,838 $136,785
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company leases its office space from a shareholder of the Company.
This space is leased on a month to month basis for $3,000 per month. Lease
payments made under this arrangement were $18,000 and $16,800, in the six
months ended June 30, 2000 and 1999, respectively. As part of this
arrangement, the Company pays the real estate taxes of the leased property.
Payments made by the Company for taxes were $3,522 and $1,637 in the six
months ended June 30, 2000 and 1999 respectively.
NOTE 5 - BANK NOTES PAYABLE AND OTHER NOTE PAYABLE
In 1997 the Company obtained a $35,000 line of credit from Firstar Bank.
Outstanding borrowings accrue interest at the Bank's prime rate plus two
percent, 11.5% at June 30, 2000. Outstanding borrowings under this
agreement were $34,311 and $2,305 at June 30, 2000 and 1999, respectively.
The majority shareholder has personally guaranteed this line of credit.
This line of credit is collateralized by substantially all assets of the
Company.
In 1999 the Company obtained an $80,000 line of credit from Huntington
Bank. Outstanding borrowings accrue interest at the Bank's prime rate plus one-
half of one percent, 10% at June 30, 2000. During 1999 this line of credit
was converted into a $100,000 commercial note. Outstanding borrowings under
this agreement were $96,695 and $38,727 at June 30, 2000 and 1999,
respectively. The majority shareholder has personally guaranteed this line
of credit. This loan is collateralized by substantially all assets of the
Company.
On February 2, 2000 the Company borrowed $50,000 from an unrelated
corporation. Outstanding borrowings accrue interest at the rate of 10% per
year. The note and interest are due August 3, 2000 and is collateralized by
property owned by the Company's President.
NOTE 6 - PROFIT SHARING PLAN
In 1997 the Company established a profit sharing and 401(k) plan covering
substantially all employees. The Company may make annual discretionary
contributions to the plan based on participants' contributions. The Company
made no contributions to the plan in the six months ended June 30, 2000 and
1999 respectively.
NOTE 7 - INCOME TAX BENEFIT
Income tax benefits are comprised of the following:
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
<S> <C> <C> <C>
Taxes currently refundable:
Federal $ 2,651 $ -
State and local - -
2,651 -
Deferred income taxes 82,005 6,112
Total income tax benefits $ 84,656 $ 6,112
</TABLE>
At June 30, 2000 and June 30, 1999 deferred income tax assets result
from the recognition of income tax benefits of tax credits and
net operating loss carryforwards, to the extent realization of such
benefits is more likely than not.
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
EDICT SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999
AS IF THE MERGER OCCURRED ON JANUARY 1, 1999
(UNAUDITED)
Twilight Edict
Productions Systems Pro Forma Pro
Ltd. Inc. Adjustments Forma
<S> <C> <C> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalent 229,666 3,420 300,000<F4> 533,086
Accounts receivable, net - 122,169 122,169
Other - 12,017 12,017
Total current assets 229,666 137,606 300,000 667,272
SOFTWARE DEVELOPMENT COSTS - 204,542 204,542
PROPERTY AND EQUIPMENT
Office equipment 2,486 147,838 150,324
Less accumulated depreciation 2,486 98,325 100,811
Depreciated cost - 49,513 49,513
Total assets 229,666 391,661 300,000 921,327
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable - 115,894 115,894
Accounts payable - 63,417 3,417
Accrued expenses - 19,108 19,108
Deferred income taxes - 905 905
Deferred revenue - 168,724 68,724
Total current liabilities - 368,048 368,048
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock 619 2,000 (2,000)<F2>
4,359 <F1>
400 <F3>
283 <F4> 5,661
Additional paid in
capital 968,239 2,000 <F2>
(75,000)<F2>
(4,359)<F1>
(400)<F3>
299,717 <F4> 1,190,197
Treasury stock (75,000) 75,000 <F2>
Retained earnings
(deficit) (739,192) 96,613 (642,579)
Total shareholders'
equity 229,666 23,613 300,000 553,279
Total liabilities and
Shareholders' equity 229,666 391,661 300,000 921,327
<FN>
<F1>
1. Issuance of 4,359,000 shares pursuant to merger agreement.
<F2>
2. Cancellation of all issued and outstanding Edict Systems shares prior to
merger.
<F3>
3. Issuance of 400,000 shares of stock to Halter Financial Group in exchange
for performance of specified services.
<F4>
4. Cash from Halter Financial Group and Art Howard Beroff due on or before
July 5, 2000 in exchange for 283,000 shares of common stock pursuant to
stock purchase agreement.
<FN>
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
EDICT SYSTEMS INC.
PRO FORMA COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999
AS IF THE MERGER OCCURRED ON JANUARY 1, 1999
(UNAUDITED)
Twilight Edict
Productions Systems Pro Forma Pro
Ltd. Inc. Adjustments Forma
<S> <C> <C> <C> <C> <C>
REVENUES
Product sales and
license fee - 815,197 815,197
Interest 11,831 - 11,831
Other income - 9,246 9,246
Total revenues 11,831 824,443 836,274
OPERATING EXPENSES
Cost of sales - 20,877 20,877
Salaries and benefits - 572,627 572,627
General and administration 123,865 187,409 311,274
Depreciation - 20,026 20,026
Amortization - 57,217 57,217
Bad debt expense - 5,000 5,000
Interest - 9,236 9,236
Miscellaneous - 1,560 1,560
Write-down of film costs 276,050 - 276,050
Total operating expenses 399,915 873,952 273,867
LOSS BEFORE (388,084) (49,509) (437,593)
Income tax benefits - (2,817) (2,817)
NET LOSS (388,084) (46,692) (434,776)
Retained (deficit)
earnings, beginning
of year (351,108) 143,305 (207,803)
RETAINED (DEFICIT) EARNINGS,
END OF YEAR (739,192) 96,613 (642,579)
Average Shares
Outstanding 5,661,173 5,661,173 5,661,173
LOSS PER SHARE (0.07) (0.01) (0.08)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
EDICT SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000
AS IF THE MERGER OCCURRED ON JANUARY 1, 2000
(UNAUDITED)
Twilight Edict
Productions Systems Pro Forma Pro
Ltd. Inc. Adjustments Forma
<S> <C> <C> <C> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalent 216,151 13,724 300,000<F4> 529,875
Accounts receivable, net - 108,052 108,052
Refundable income tax - 11,844 1,844
Deferred income taxes - 7,754 7,754
Prepaid expenses - 9,811 9,811
Total current assets 216,151 151,185 300,000 667,336
SOFTWARE DEVELOPMENT COSTS, net 183,339 183,339
PROPERTY AND EQUIPMENT
Office equipment 2,486 148,603 151,089
Less accumulated depreciation 2,486 103,425 105,911
Depreciated cost - 45,178 45,178
Total assets 216,151 379,702 300,000 895,853
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank notes payable - 130,341 130,341
Other note payable - 50,000 50,000
Accounts payable - 72,897 72,897
Accrued expenses - 37,329 37,329
Deferred revenue - 147,025 147,025
Total current liabilities - 437,592 437,592
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock 619 2,000 (2,000)<F2>
4,359 <F1>
400 <F3>
283 <F4> 5,661
Additional paid in capital 968,239 - 2,000 <F2>
(75,000)<F2>
(4,359)<F1>
(400)<F3>
299,717 <F4> 1,190,197
Treasury stock (75,000) 75,000 <F2>
Retained earnings (deficit) (752,707) 15,110 - 737,597
Total shareholders' equity 216,151 (57,890) 300,000 458,261
Total liabilities and
shareholders' equity 216,151 379,702 300,000 895,853
<FN>
<F1>
1. Issuance of 4,359,000 shares pursuant to merger agreement.
<F2>
2. Cancellation of all issued and outstanding Edict Systems shares prior to
merger.
<F3>
3. Issuance of 400,000 shares of stock to Halter Financial Group in exchange
for performance of specified services.
<F4>
4. Cash from Halter Financial Group and Art Howard Beroff due on or before
July 5, 2000 in exchange for 283,000 shares of common stock purchase
agreement.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL INFORMATION
EDICT SYSTEMS INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE QUARTER ENDED MARCH 31, 2000
AS IF THE MERGER OCCURRED ON JANUARY 1, 2000
(UNAUDITED)
Twilight Edict
Productions Systems Pro Forma Pro
Ltd. Inc. Adjustments Forma
<S> <C> <C> <C> <C> <C>
REVENUES
Product sales and license fees 199,043 199,043
Interest 1,632 - 1,632
Other income - 580 580
Total revenues 1,632 199,623 201,255
OPERATING EXPENSES
Cost of sales - 9,025 9,025
Salaries and benefits - 211,027 211,027
General and administration 15,147 39,408 54,555
Depreciation - 5,100 5,100
Amortization - 21,203 21,203
Bad debt expense - 10,000 10,000
Interest - 5,866 5,866
Total operating expenses 15,147 301,629 316,776
LOSS BEFORE TAXES (13,515) (102,006) (115,521)
Income tax benefits - (20,503) (20,503)
NET LOSS (13,515) (81,503) (95,018)
Retained (deficit) earnings,
beginning of quarter (739,192) 96,613 (642,579)
RETAINED (DEFICIT) EARNINGS,
END OF QUARTER (752,707) 15,110 (737,597)
Average Shares Outstanding 5,661,173 5,661,173 5,661,173
LOSS PER SHARE - (0.01)
(0.02)
</TABLE>
PART III
ITEM 1. INDEX TO EXHIBITS
2 Agreement and Plan of Merger, dated as of April 10, 2000, among EDICT
Systems, Inc., Twilight Productions, Ltd. and Twilight Acquisition Sub,
Inc. *
3(i)(a) Amended Certificate of Incorporation *
3(i)(b) Amendment to Certificate of Incorporation
3(ii) By-laws *
4 Form of Common Stock Certificate *
10.1 Lease Agreement, dated as of January 1, 2000, between Jason K.
Wadzinski and EDICT Systems, Inc. *
10.2 Stock Purchase Agreement, dated April 10, 2000, among Twilight
Productions, Ltd.,Halter Financial Group, Inc. and Art Howard Beroff *
11 Statement regarding computation of per share earnings
21 Subsidiaries of the Company *
* Previously filed.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ADVANT-E CORPORATION
Date: _________________ By:/s/ Jason Wadzinski
Jason Wadzinski, President
EXHIBIT 3(i)(b) - AMENDMENT TO CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TWILIGHT PRODUCTIONS LTD.
Twilight Productions Ltd., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of Incorporation of said
corporation:
RESOLVED, that Article FIRST of the Certificate of Incorporation of
Twilight Productions Ltd. be, and hereby is, amended to read as follows:
FIRST. The name of the corporation shall be ADVANT-E CORPORATION.
SECOND: That in lieu of a meeting and vote of stockholders, Eighty-Two
Percent (82%) of the stockholders have given written consent to said amendment
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Twilight Productions Ltd. has caused this certificate
to be signed by Jason K. Wadzinski, its President, this 6th day of September,
2000.
TWILIGHT PRODUCTIONS LTD.
By: /s/ Jason K. Wadzinski
-------------------------------
Jason K. Wadzinski, President
EXHIBIT 4 - FORM OF COMMON STOCK CERTIFICATE
ADVANT-E CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CUSIP 00761J 10 7
SEE REVERSE FOR
CERTAIN DEFINITIONS
This
certifies
that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE, OF
ADVANT-E CORPORATION
(hereinafter called the "Corporation"), transferable upon the books of the
Corporation by the holder hereof in person or duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not
valid unless countersigned by the Transfer Agent. Witness the facsimile seal
of the Corporation and the facsimile signatures of its duly authorized
officers.
Date:
Countersigned:
SECURITIES TRANSFER CORPORATION
PRESIDENT P.O. Box 701829
Dallas, TX 75370
By:
___________________________________
SECRETARY TRANSFER AGENT-AUTHORIZED SIGNATURE
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
Per share earnings are computed and displayed in the pro forma financial
information at December 31, 1999 (as if the merger occurred on January 1,
1999) and March 31, 2000 (as if the merger occurred on January 1, 2000). Due
to the significance of the number of shares issued in the merger between
Twilight Productions, Ltd. and Edict Systems, Inc., there is no display
of earnings per share for the individual company historic financial statement
presentations because these computations are not considered meaningful.
Assumed average outstanding shares used in the computation of per share
earnings for the pro forma financial statement presentations include the
following shares issued or expected to be issued:
Twilight Production, Ltd. common shares outstanding at
time of merger 619,173
Common shares issued to Edict Systems, Inc. shareholders
at time of merger 4,359,000
Common shares issued at time of merger through private
Placement 400,000
Common shares expected to be issued pursuant to stock
purchase agreement 283,000
Total shares used in computation of per share earnings 5,661,173
Per share earnings are computed and displayed in the unaudited consolidated
statement of operations for the three months and the six months ended
June 30,2000, using the share calculation shown above
for diluted earnings per share. Shares used for the basic earnings
per share calculation in the unaudited consolidated statement of operations
exclude 283,000 of common shares expected to be issued pursuant to a
stock purchase agreement subsequent to June 30, 2000.
